I started reading The Elements of Typographic Style and found the term "letterfit". I'm unsure as to what it means. It doesn't appear in the glossary of terms of the book. Is it related to kerning?
"Letterfit" is a general term meaning "the adjustment of spacing between characters in a piece of text." It is an umbrella word that encompasses two related but different processes, plus a third that is (as far as I'm aware) peculiar to Adobe's applications.
The first is kerning, which is the adjustment of the space between individual character pairs. A character can be a letter, a number, a punctuation mark (period, comma, quotation mark) or other symbol (ornaments, dashes, bullets, etc.). Larstech's answer shows an example of kerning, and "The Elements of Typographic Style" contains many examples of problematic pairs that need individual kerning.
Digital font files contain specific instructions for different character pairs in a "kerning table" which is referenced automatically as you set the text. One of the major differences between a cheap of free font and an expensive professional one is the number of kerning pairs that the designer has specified. In a font family such as Adobe Garamond Premier Pro there are thousands of kerning pairs in each font. When you set the kerning value in your character style to "Metrics," it is these kerning that the software uses to space the text.
The second term that falls under "letterfitting" is what is commonly called "tracking" in design and layout programs. This adjusts the kerning of all the characters in the text (including spaces) in equal proportions. It is a very blunt tool, but useful for headlines (type often looks too "loose" when set at very large sizes) and captions (tiny text usually has to be opened up a little for easier reading). It is easily overdone, and should be used cautiously. You will also find excellent examples of the use of tracking in the book.
The third method of letterfit is active when you set the kerning value in your character style to "Optical" in InDesign, Illustrator, etc.. Optical kerning bypasses the built-in kerning tables. The software "looks" at the geometry of every character in relation to the ones on either side and adjusts the spacing based on a very sophisticated algorithm to give a "best guess" at how things ought to be spaced. If you're using a cheap typeface, this can seriously improved the look of your text. It is not foolproof, as Bringhurst points out in the book, but it can often get you 99% of the way there.
As a special note, don't ever use optical kerning or tracking with script fonts where the letters are supposed to connect with one another. The connectors will "break" and the illusion of continuous writing is destroyed.