The letter is, as many things in Hawthorne, ambiguous. Hester creates a symbol that recognizes the right of the society to punish her for a violation of its rules. On the other hand she makes that symbol beautiful instead of the rag that one of the old maidens says it should be. She makes it beautiful because she realizes that, although she violated a community standard, she did not violate her own: "What we did had a consecration of it's own." This ambiguity permeates most of Hawthorne's work (cf. "Young Goodman Brown"), and is beautifully handled here.
Hester makes her letter large and in red, scarlett red to be exact. Hester was forced to make the letter herself, so she made is as obvious and ostentatious probably to throw it back into the faces of the townspeople who punished her. Hester knows the town is full of secrets, everyone has them. Hers was brought out and made public. She decides to make her secret so well known the people of the town can't help but think of their own secrets as well. Also, her lover was not identified. She wears her letter for him as well as for herself. She takes the punishment on herself to save him from the embarassment.