No matter which type of letters you'll be creating, start with two coats of a base color that will contrast the letters. Letters pop against pastels, so a minty green, light purple or baby pink would be ideal. Let your nails dry completely before you start your nail design.
Determine the method you'll be using: do you want bold block letters, or a cursive style? If so, your best option is a nail-polish pen. These are generally available at beauty supply stores and they're the easiest for creating elaborate letters or designs. If you haven't got the time, but want the look right now, use a toothpick and some regular nail polish. Using the sharp point, carefully form letters with nail polish.
For the most clear and professional-looking letters, use words that you've cut from newsprint. Starting with the dried base color, dip one nail in a small glass of rubbing alcohol or vodka. Press the letter on paper against your nail while it's still wet and hold it for 30 seconds. The alcohol will transfer the ink onto your nail like a temporary tattoo.
Remove strip and repeat on each nail with the desired cut-out letters. Try using different fonts for a funky look, or apply bits of small text to each nail to get the "newspaper" effect. Let the transferred ink dry onto your nails for a few seconds, then finish with a clear top coat applied to all nails to seal it into place.
Always keep some nail polish remover and cotton swabs on hand for quick fixes. If the mistake is a small one while forming a letter, dip a toothpick in polish remover and gently nudge the polish back into place.
When holding the newsprint letters onto your nail, don't let them move around -- it will smudge the ink and ruin the design.
If you're using a toothpick to create letters, let them dry for at least five minutes before the top coat -- if they aren't completely dry, the clear coat will smear them downward.