What the?

Our syndicate is focussing on charities this year. We looked at what a charity does, how they work and why we need them. From this we have began to focus on one charity that will then be our focus for fundraising.
So before we get into the planing stages of this year long project we needed to find out what our chosen charity is all about.  I have started the children up on an inquiry learning project. They have been working in small groups. At this stage (while we are going through the note taking steps) I have given the information to the class. I thought it was simple and easy to follow, however, after asking the children to read the information I realised that it didn't seem so simple to them.

I talked to some of the children around the room about what they were reading and although they understood the main points of the text a few didn't understand specific words.

Now when I was a kid I was expected to go and find the meaning of words in a dictionary myself. Mind you English was my second language and early on in my NZ school life I didn't understand many words at all, so I got loads of practice looking for words in a dictionary. What I found interesting was that some children in my class were completely stumped and didn't know what to do. When we discussed what they could do to figure the meanings of these words out they looked at me like I was from another planet.
"You mean you aren't just going to tell me?"
I thought that they would have figured out by now that I don't make things easy for them.

So my question is... what is happening that our students are increasingly achieving less and less in vocabulary tests and are becoming more confused by dictionaries (and I don't just mean the paper ones, online too).
I worked with a group to find meanings to words and for the first part of the exercise they managed to track the word down and even read the definition but that was it. Nothing seemed to settle and the meaning was not applied to the text. I had their little eyes looking up at me as if to say, "here it is, I found it! Now will you tell me what it means?"
We struggled for a while but we got there in the end. I endeavour to keep giving my students interesting vocabulary to figure out the meanings of. I will keep using difficult words when I speak just to expose them to something different.
But next year I will need to start again...

So what do we do? How do we increase our kids vocabulary and how do we continue to develop these skills that our kids seem to be loosing?