Making a word out of the first letter of words?

That's called an acronym. Some examples are:

• SNAFU for Situation normal, all fouled up.
• POSSLQ (pronounced posselque) for Person of Opposite Sex Sharing Living Quarters
• And any number of government and military terms; NASA for National Aeronautical and Space Administration or SAM for Surface to Air Missile or even GI which is used to refer to a person but stands for Government Issue.