Laquelle/Lequel(/Lesquels) = which one(s). Quelle = which. Saying "Which one letter?" has a different meaning from "Which letter?". Laquelle is often used with an "est," if I remember correctly: "Laquelle est ma robe?"; "Laquelle est ta fille?". If it goes straight to the noun, use quelle: "Quelle animal?"; "Quelle livre?" :D
Yes, in French "Quelle lettre?" means both "What letter?" and "Which letter?" Context would be needed to understand which the speaker means.
DuoLingo does accept "What letter?" as a translation, as it should.
As for context, these example dialogues in English should help:
A: Did you see the letter? B: (not seeing any letters anywhere nearby) What letter?
A: Did you see the letter? B: (seeing some letters) Which letter?
In French which must match the subject in gender and number.
"Quel" -> goes with masculine subject.
"Quelle" -> goes with feminine subject.
"Quels" -> goes with masculine subjects.
"Quelles" -> goes with feminine subjects.
Lettre is a feminine subject, therefore we use "quelle" to ask about it.