My 3 (almost 4) year-old is really into letters at the moment. He's asking questions about them, pointing them out, recognising/naming them, making them and just generally showing that now is the time to follow his interest and provide him with opportunities to practice and learn more about letters and his name.
I don't have time for fancy set-ups or anything that takes a long time to prepare these days (3 year-olds really keep you busy!) and it's almost always the simple activities that are most enjoyed and get the most use. This wax-resist activity is a classic that doesn't go out of style. You only need a candle, paper and some watercolour paint to have fun practicing name recognition, letter learning, number learning and just having fun.
See the bottom for handy tips to simplify or extend to suit your child's age & level of development.