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what is it called when the first letter of a word is used to create another word?

It is called an ACRONYM. When you use the first letter of a series of existing word or words you create an ACRONYM. Such as NASA. Or PETA.

Acronym is incorrect. Acronym is, is as you described created an abbreviation in such a way as to create a pronounceable word.

An example of the question being asked for the word team is below:

T Together

E Everyone

A Achieves

M More

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Q: What is it called when the first letter of each word is used to create another word?
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