Will these letters be sent by regular mail or emailed? Merge fields are a very good option for regular mail or for generating a PDF to attach to an email. There are other options for generating a plain text email with this same message.
Most definitely either regular mail or email. I was going to go down that email path later after I understood the regular print side of things.
Feel free to ask questions if the above posts are insufficient to help you out.
There's also a more advanced method that allows you to set up a table of "message template" records. With this method, you can create/edit your form letters simply by typing text into a text field along with "placeholders" for fields in your database. Then you can select a specific message template, find the group of records needed for the data that will be inserted into the letters and you get a found set of messages where each record uses a different member record to fill in the data.
Since the result is text in a calculation field, it can be used in the body of an email or printed as hard copy.
Here's a demo of this more sophisticated method: http://www.4shared.com/file/7DdcpW11/MessageTemplateBuilder.html