Letters are items that are found in Fatty Bear's Birthday Surprise.
Fatty Bear's Birthday Surprise Edit
After the puppy escapes from its present box, it steals three random letters for Kayla's Happy Birthday sign (which letters that are stolen vary with each game) and scatters them around the house. Mathilda Rabbit notifies this to Fatty Bear after you leave the kitchen to go after the puppy and re-enter the kitchen.
H - in the basement
A - in the bedroom closet of the parents bedroom
P - in the bathroom
P - in the treehouse
Y - under living room couch
B - on the mailbox
I - in the garage
R - underneath the Fatty Bear picture upstairs
T - in the refrigerator
H - in the study room
D - on the fence next to the tire swing outside
A - in the fish tank
Y - on the living room carpet
Once you find the three missing letters, Fatty Bear will need to head back to Kayla's room and put them back on the Happy Birthday sign.