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Letters of recommendation do matter for grad school, according to the speaker. They believe that the overall package is important, including grades, GRE scores, letters of recommendation, and undergraduate research. The speaker emphasizes that when writing a letter for someone, they put in effort to make it the best they can, as it could impact the person's future opportunities, such as getting into grad school or a competitive internship. The speaker stresses the importance of taking the time to write a quality letter.