I am an intermediate-advanced guitarist who has been playing for 8 years and can read TAB and sheet music fairly well, but I want to improve my sight reading. I am not the worst at it but I want it to get better. If anyone can tell how they learnt to sight read or any books or websites out there that can help, please let me know.
A technique advocated by Steve Vai on this one is to pick up some sheet music books for other instruments, especially violin. Being a hardy Scot I'd recommend some fiddle tunes, but that's up to you ;)
A book specific to guitar that I've found great for sight-reading practice is Harmony for Guitar. Sight reading isn't the direct focus of the book, but all the examples are in proper notation, and it's great for modes and classical theory too!
As someone once told me in school, the only way to learn how to sight read is to sight read. Start with stuff that you can learn easily, and mix things up with greater and lesser challenges. As you get better, learn how to fake difficult passages by leaving out and changing some of the notes. As you get still better, then you will find that you have to do this less often.
There isn't any easier or harder way to do it. You get better by doing it. I can sight read any music in a beginner's book pretty much perfectly, intermediate stuff well enough, advanced stuff not so well. Liszt was supposed to be able to look over an orchestral score once, and then read over it at the piano in such a way that the entire orchestra seemed to come to life, pulling all the instruments together under his ten fingers. (We all have our limitations; his only one was that he only had ten fingers!)
I use William Leavitt's "A Modern Method for Guitar". I'm currently working on volume 1 (out of 3).
It starts nice and easy with the C major scale in open position, where you have a few pages of studies, duets, etc. The book also teaches you chords (mostly triads) related to that position. Then it moves on to other scales (G major and F major, if i recall correctly.)
In the later volumes/chapters, the author goes through more advanced stuff, such as chord inversions, chord constructions, dynamics, etc.
It is a bit dry, but to learn/practise sight reading, it is amazing.
I actually really enjoy playing the lead lines of violin music on guitar. You can fill in some more notes with a bass notes that ring or the strumming of chord on the strong pulse. It is really good at developing a musical sensitivity as well as getting you good at sight reading.
If you do this just make sure the music is written in a guitar friendly key and is not in any of the other clefs.