You don't have to :), but if you want to, cf. here: https://www.geocaching.com/help/index.php?pg=kb.chapter&id=127&pgid=822
Basically, a letterbox is a physical cache which contains a stamp (so that the finder can stamp his own field diary with it.)
In the stricter sense – and many letterboxes are done like this – it is often like a multicache, but where you find the next waypoints not with the GPS and co-ordinates, but with a description of how to get there. Often this is "wrapped" in a nice story, and that is what makes some letterboxes really worthwile.