What term is used to describe the ability to recognize distinct sounds within individual words?

The ability to recognize distinct sounds within individual words is accurately described as phoneme isolation. This term refers to the skill of identifying and isolating individual phonemes, or sounds, in spoken language. For example, if a teacher asks a student to identify the first sound in the word "cat," the student would recognize that the initial phoneme is /k/. Phoneme isolation is crucial for developing phonemic awareness, which is foundational for reading and spelling, as it supports the understanding of how sounds correspond to letters and how they can be manipulated to form different words.

In contrast, the other terms refer to different phonemic tasks that focus on recognizing phonemes in other ways, such as categorizing, adding to, or substituting phonemes in words, rather than isolating them. This distinction highlights why phoneme isolation is the term that best fits the description provided in the question.