I speak as someone who can't sight read on guitar -- so take what I say with a pinch of salt. I can read music to the extent that I can slowly work out what it's meant to sound like, and having done that, I attempt to play that by ear.
On (say) a piano, every note on the stave corresponds to one key, and having learned that mapping -- and how to read rhythms -- the only challenge remaining is how to get your fingers to those keys in the right order.
With guitar, you have the extra challenge that for a given note, you have a choice of strings to play it on.
To be able to sight read effectively, you need to have a mental map so that when you see a note on the page, you can visualise every fretting that corresponds to that note. So practice by calling out a note, and playing it on every possible string.
Next, melodies. With the note positions you've learned, you can play any melody. You could play a melody a naive way, on a single string (and it might sound good), or in one of several positions with less hand movement, or you could hop wildly from string to string and up and down the fretboard (which may itself be a good exercise!). The sheet music may well not indicate what hand position to use. I would experiment to find out what sounds best (or more realistically, what hand position allows me to play it with my limited talent!).
You may already have learned some scales. There are books aimed at rock/blues players which show fret maps of pentatonic scales etc. It would behove you to learn to identify those fret maps with the notes you see on the sheet. The key signature will narrow down which scale to choose. Slurs between certain notes might hint that you want a position where the scale can be played with those two notes on the same string.
So - teach yourself to spot the scales in use in the first few bars of the piece ("Aha, most of the notes there are in Gm pentatonic"), and position your hand accordingly.
You should of course save yourself some learning, by reasoning early on about the movability of these hand positions.
For simple pieces, one position might last the whole song. More often, you'll need to move.
Finally, chords. Although this builds on what has been discussed so far, I think to an extent reading chords from sheet music is matter of learning by rote. A written chord has a shape. Learn what that shape looks like, and how to play it. No real short cuts.
I suspect it would be useful when learning, to use books that combine tabs with staves, in order to compare where you might have chosen to play a note, with what the person who tabbed it chose.