The blocks were already painted for me, but this would be really easy to do. Just cut a 2x4 into the sizes you want your letters, then sand and paint.
Mod Podge some colorful paper on the blocks. The letters are vinyl cutouts, with a sticky back. There are a lot of places that make vinyl letters like this. In the future (because I plan on making more!) I'll just use my cricut to cut the letters out of paper. Then mod podge them on. After sticking the letters I added another layer of mod podge to seal it all.
Then embellish and display!