A limited edition book is one where the number of copies in the print run has been severely limited, usually to about 1000. They are often numbered (e.g., "This limited edition is limited to 1000. This is copy 551.") They are often special in various ways, although this ranges from special binding to simply being a signed first edition.
A lettered edition is a very limited edition, in which there are only 26 or 52 copies. This is often done in conjunction with a numbered limited edition, with the lettered edition having something (even more) special to set it apart.
Traditionally, a lettered editions are limited to 26 copies, one for each letter of the alphabet. It is now common to have 53 copies, running either from A-ZZ or a-Z. While a limited edition might have something that is of interest to non-collectors -- special art, a one-off short story -- lettered editions are specifically designed to be super collectable. A quick sampling indicates that it is common for lettered editions to go for ten times a standard first edition at their original purchase, and may increase in value from there. Being near the peak of book-world collectables, a significant percentage of lettered editions will never be read -- you might accidently reduce value.