A word formed from the first letters of a phrase, like “NASA,” is called an acronym. NASA expands to National Aeronautics and Space Administration, and it is pronounced as a single word rather than as separate letters.
The term comes from Greek roots meaning “tip” or “summit” and “name.” English usage of “acronym” became established in the 20th century, with early English attestations dating to around 1940. Other familiar examples include NATO, laser, radar, scuba, and GIF; several of these began as technical abbreviations but became ordinary dictionary words.
A common mix-up is the distinction between an acronym and an initialism. In the narrow technical sense, an acronym is spoken as a word, while an initialism is pronounced letter by letter, as with FBI or DNA. However, many dictionaries and everyday speakers use “acronym” broadly for both kinds of abbreviation. Because NASA satisfies even the narrow definition, “acronym” is the clear answer here.