It's good to start at 5 months, before your baby is too mobile and resent being still for
cards, books etc.
As far as telling whether he knows, he will. In a few months he'll be pointing to elephants or stars in books after you've shown him just a few times.. same with words!
But some babies are better than others at letting you know what they know. My daughter has very rarely sight read to me, for example. Sometimes i'll catch up identifying letters, saying some numbers in french or chinese etc.. but if i ask her for something (even to pick between 2 cards) she refuses or always picks the wrong one