Drop cap is used to create a large initial capital letter to spread over multiple lines. The letter expanded in this way is said to be dropped. It adds interest to a newsletter or an article. Drop cap can be used to drop a single letter or word(s) and expand it to multiple lines in a paragraph.
An example of drop cap is shown in the image given below:

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.