The letter is the basic unit of reading and writing in English, and familiarity with the letters of the alphabet has consistently been shown to be a strong predictor of future reading success. While not sufficient in itself for reading success, familiarity with the letters of the alphabet is important for developing decoding skills.
Typically, testing a child's knowledge of the letters of the alphabet involves presenting the child with a page full of letters, and asking the child to name them. The page usually contains upper-case letters and lower-case letters, and a few odd characters like the two versions of the lower case "a" and the lower-case "g." This is not, however, the only approach to assessing letter knowledge.
Young children who do not know the letter names yet can be given a pile of manipulable letters and numbers and symbols and asked to separate the letters from the numbers and symbols. Similarly, children can be asked to "tell what they know" about each letter - they may not know the name of the letter, but they might know a sound that it represents or a word that starts with that letter. Children that know all the letter names can be further tested by their ability to separate the letters into upper- and lower-case groups, or to separate them into vowels and consonants.