I agree with the rule, though you clearly need to use your discretion: non-fiction doesn't count. Ditto for foreign passages and archaic words. If you are good at figuring out words from context, or like hunting them down in the dictionary, then up your threshold. And remember that this rule is directed towards children's books, books that typically have far fewer words per page.

In some cases, I believe that holding back readers is a good idea. I have seen far too many adult ESL students and children give up simply because they were attempting to read material far beyond their reading level. Worse yet, I've seen ESL students and children zipping through books like they were going out of style and even pronouncing words properly when they were asked to read -- yet they could not understand construct meaning from the text.