I was gifted this white phal orchid for easter a week ago. I knew it was a grocery store plant so I wasn't expecting it to be perfect, however two of the leaves started rotting so I removed them and covered the cuts with cinnamon. The flowers started developing spots or holes so I decided I wanted to take a look at the roots. That's when I discovered that the plant was planted in a plastic pot that was glued inside a ceramic pot, with no drainage in the ceramic pot. These are what the roots look like. Is it root rot? You might not be able to see in the picture, but some of the roots are spotty, yellow and almost look like there's mold on them. The roots inside the pot look alright, but some on top of the pot look like they've collapsed or shriveled. Is it rot or something else? I haven't watered it yet.

Its good that you got it out of that ceramic pot. The good news is that you do have some good roots in there. The roots that are plump and greenish are healthy, happy roots. The yellow, mushy or dried roots are obviously dead. The yellow leaves are a direct result of being overwatered.

The petals look like mechanical damage - overwatering results in wilted flowers, not bruised and holey flowers.

Your Phalaenopsis has enough roots to do well and will grow more with proper care. Phals like to be dry so if you stick your finger in the bark and feel any moisture, don't water. When you do water, fill the ceramic pot with water and let the bark soak for 5 minutes then dump the water out.

Good luck!

It's time to replace the bark chip potting medium, but not until it has finished flowering.

Trim off all roots that are not plump, as Daisy described and carefully remove all of the bark chips that are clinging to the roots. Get a nice terracotta Orchid pot if you can find one and use a packaged Orchid mix. The pot should be just large enough to accommodate most of the healthy roots snugly. Fill in the spaces around the roots with the Orchid mix and water it thoroughly.

Phalaenopsis respond well to root pruning and a fresh start in a fresh potting mix. However, it will recover slowly and probably will not flower again for at least another year.

Look at the growing medium in your pot carefully. Feel it. Mush it between your fingers. If you don't see anything that looks like dirt and the wood chips are still solid, don't repot. Just let it dry out.

The good news is that you caught this problem early on. It takes time and a good deal of neglect to kill a Phalaenopsis. They respond very well to repotting and within 4-6 weeks they will sprout new roots.
Fresh growing media is very important as mentioned. The problem lies with growing the plant in a pot inside of another pot! And you have already learned that lesson. Congratulations for that.
Your plant should recover easily. Good luck!