Does PAL start with phonemes? I am worried that it using sight words.

PAL is a very strong phonetic program. It blends the best of phonics with the best of sight reading. Poetry is used to introduce the phonemes (letter sounds) and phonograms (letters that are printed to make the sound).
When sight words are presented, the phonograms and their phonemes are discussed. Thus, students do learn the phonics to be able to sound out any word, but they also are given plenty of repetition through fun games and poetry to memorize a bunch of words so that they can read early and fluently without the burden of having to sound out each and every word they encounter. This is especially helpful for dyslexic students who have a hard time memorizing and seeing how the phonics work in words. They are provided with multi-sensory ways to learn the phonics and words such that words become their friends.