So that's what the letters were for on phone keyboards.

The use for vanity numbers is a later development. Originally the three digit exchange "number" in North America was identified by a three letter code. On a phone with no dial you'd tell the operator the exchange codeword and the four digit number within the exchange if you didn't want to manually pulse the switchhook. For automatic switch dialed calls, the dial needed to also be marked for these letter codes so you didn't need to use a separate reference for the corresponding digit.