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To enhance the formatting of paragraphs in a letter, start by ensuring the Ruler is visible under the View tab. To create a first line indent, place the insertion point at the beginning of the paragraph and press the Tab key, causing the First Line Indent marker on the Ruler to move forward ½ inch. Other markers include the Hanging Indent, Left Indent, and Right Indent, which can be adjusted to create different indentations. These changes apply only to selected text, so highlight the desired paragraphs before dragging the First Line Indent marker. Additionally, a Hanging Indent moves all lines except the first, while the Left Indent affects all lines equally.