While the latter approach is fine if you are reading for enjoyment and will definitely help your Spanish, there are two specific areas in which you can help improve your Spanish that demand that you go through the text in a specific way.
Reading to improve vocabulary
The first, which is probably most common is to start reading and to stop every time you find a word you don't understand and reach for the dictionary. This will improve your vocabulary as you go through the text, but if you're trying to read a book this way it can become quickly tiring and you may lose sight of the story due to the number of words you look up as you go along.
This approach really works better for news items, where you can go through a text, highlight the vocabulary you don't know and go through it in one block to find the translations. Then go through the text again to see how your comprehension improves.
Reading Spanish to increase fluency
The second approach is to simply keep reading, as close to your normal reading speed as possible without stopping, even when you haven't understood. This is closer to the way you read in English, with knowledge gaps being filled by other clues. This helps you going, even when you know you don't understand everything and helps build a coping mechanism for dealing with those information gaps.
While it is much easier to reach for the dictionary as you go along when you are reading, just imagine what happens when you are talking with someone in Spanish; you simply can't, so you need to try and get the complete information from the context, by asking questions or just waiting to see if the missing information appears at a later stage in the conversation.
By doing this with your reading you'll actually be able to enjoy the story if it is a novel that you are reading; reading the same book with a dictionary doesn't exactly make for relaxing reading and may put you off from picking up that book.
