"See and say" or "whole word" was invented to teach the deaf to read. "See and say" was primarily championed by William S. Gray and was adopted by the educational establishment in the 1930's and 1940's (the "Dick and Jane" books).
Q1. Why? Good question. Phonics had been successfully used to teach reading in a multitude of languages for thousands of years. The most likely reason for the switch is that overeducated, fundamentally arrogant and stupid people with no common sense or grounding in reality acquired great power in the field of education and foisted a completely unrealistic and whimsical reading theory on millions of innocent children. A more cynical reason might be that the education establishment wanted a certain percentage of children to fail so they could expand their empires by having to hire special ed teachers, remedial reading teachers, and so forth. Also, the sellers of textbooks are not averse to selling multiple books on reading, remedial reading, AV materials and computer programs to first do, and then undo, the damage inflicted by "whole word" instead of selling the pack of phonics drill cards that work "first time (almost) all the time".
In 1955, "see and say" was completely exposed for the fraud it is by Rudolf Flesch in his famous book Why Johnny Can't Read And What You Can Do About It. There have been dozens of studies fully documenting the inferiority of the "whole word" method of teaching reading compared to phonics. And yet some 80 percent of all public school districts still use "whole word" or its equivalent.
Q2. Why? Good question. See the possible answers under Q1.
So true. Where did you find your quote ?
They missed one point. John Dewey didn't think it was important to teach reading to kids. A child's socialization skills were considered by Dewey to be much more important to society, and it's still the primary argument used against homeschoolers.