Letters that are decorated. During the middle ages, monks would copy books by hand since the printing press hadn't been invented yet. In the past, books were very valuable as they were hand made. Monks would illustrate the first letter of the first word on a page or at the start of a paragraph. Some of the best examples of illuminated letters are in the 'Book of Kell' which you can view online as well as find in any decent bookstore.
Illuminated letters may have vines drawn around the letter's parts or a letter may be made to look like something else to make it very ornate. Some of these letters had miniature pictures of angels, peasants working in the fields, angels, gargoyles - all sorts of illustrations and depictions. They are often gilded with gold ink.
In desktop publishing, the first letter of a paragraph that is enlarged to "drop" down two or more lines, as in the next paragraph. Drop caps are often seen at the beginning of novels, where the top of the first letter of the first word lines up with the top of the first sentence and drops down to the four or fifth sentence.
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