What it means
A drop cap is an initial letter set in a much larger size, its top aligned with the first line's cap height and its body dropping down into the lines below — typically three lines, sometimes two or four. It descends from the painted initials of manuscript books and marks the start of a chapter or section.
There are cousins. A raised cap (or stick-up initial) sits on the baseline of the first line and rises above it; a hanging initial sits out in the margin. Whichever is used, the convention is to set the first word, or the first few words, in small caps so the eye steps down gently from the initial to the text size.
A drop cap is easy to do badly: the letter must be optically aligned (a round O or a pointed A needs adjusting), the text should wrap tightly to its shape, and quotation marks that open a chapter are usually dropped or hung outside the initial.
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