This technique of showing you letters in a picture and expecting the user to tell the computer what the letters are is a form of CAPTCHA. To explain CAPTCHA, I will need to give you some background.
CAPTCHA, or “Completely Automated Public Turing Test to tell Computer and Humans Apart” is a system designed to make sure that the person visiting a page is human.
Believe it or not, there are robot programs that surf the internet. The bad ones are designed to harvest email address from websites, attempt to exploit commonly known security vulnerabilities on servers, and to sign up for email and forum accounts and produce spam like crazy.
Email and Forum websites have answered these robots by producing “tests” that only humans should be able to do. The simplest way to test this is by providing a picture, that the human can quickly interpret as text, but a computer would think was just another picture.
A site called “Coding Horror” has a really good article on how to make your CAPTCHA most effective.