This book should really be called How Novels Work (though John Mullan bagged that title first) or even How Literary Novels Work because Wood's concern is not with short stories or plays but with the novel and with a particular kind of novel at that. Wood believes the history of the novel has been a progression towards a particular goal. Indeed, he says: "The history of the novel can be told as the development of free indirect style." I'm no expert in literary theory but that strikes me as a subjective view and one of the frustrations of this book is that Wood frequently makes assertions without acknowledging that there may be a dissenting school of thought.
Wood's generalisations are problematic only because of his tendency to switch between academic and personal voices when it suits him. Perhaps he does so when he assumes his readers will know the territory or perhaps he's shrinking from the challenge. I don't have the necessary expertise to judge.
However, when Wood concentrates on detail he's superb. His close readings of various gobbets pepper the book and are all illuminating, even when one doesn't agree with Wood's analysis. His excitement over a passage from Saul Bellow about flying seemed a little excessive to me, for example. Nevertheless Wood's passion is never in doubt and it's infectious.
This is an eye-opening book. I'd guess that it's pretty much impossible to read it and not have the experience of reading enriched with every book you pick up thereafter. And that's quite an achievement.