It's hard to believe that a critic can be so perceptive and yet have as many blind spots as James Wood does in How Fiction Works. When he's doing a close reading of a passage from Austen, his insights into her uses of different registers of English usage for humorous effect is eye-opening. He shows how she slips into a slightly more pompous mode for a few words, just to give a fillip of humor to a minor character, how she slips into a more colloquial English (again, just for a few words) for someone else, and so on.
On the other hand, he has no use for plot. (It's a relic that literature outgrew in the 19th century, Wood declares in one of his most bizarre dicta). He fails to see how plot can drive thematic concerns, for example. As a high art example, the plot is essential even to as character-driven a novel as The God of Small Things; the whole novel rotates around the crime at its center. On the whole, the lack of attention to large-scale structure very much mars How Fiction Works; it's hard to imagine a book on the craft of fiction that doesn't talk about climax, denouement, etc.
In the end, I think, Wood is a reliable guide on fiction he likes (Flaubert, Austen, Bellow), but doesn't even understand writers outside of a fairly narrow modernist tradition. (Yes, he like Austen, who of course in not Modernist, but, even here, she receives criticism for not describing people and places sufficiently, in a more Modernist sort of way.)