The standard string find algorithm does not know anything about your string; it will find the first instance in the string of whatever you want. "Quotes" and the like mean nothing.
Without doing your assignment or trying to figure out everything that your code is supposed to do, it is difficult to understand what difficulty you are having.
Don't search on ASCII numbers. Use it properly: pos=phrase.find(' ');
Are you trying to split the phrase on whitespaces?
[edit] BTW, it looks like you are supposed to be coding in Python
[edit 2] Where can I find a copy of the files your professor gave you: "ps4.py", "words.txt", and "fable.txt"?
that function is suppose to store a key in a global vector called MKEY with x being the character position and y being the shift amount. All the "cout"s in that function are for debugging purposes. i can't seem to figure out why the it seems to skip some words like shown in my output example.