If I am opening/creating the account for him, how does he have SP in his account? Is it created and then the funds are transferred into the new account.

The created account does not automatically have any SP after creation. I will add an option for direct delegation and transfer in future.

Would I be able to transfer from my own Steem or SBD?

Of course, you can transfer STEEM or SBD to the new account after creation. On SteemWorld in Tools -> Transfer there is a field Transfer Mode where you can choose Transfer To Vesting to transfer STEEM directly to the SP of the new account.