How small can you embroider letters?
You cannot have letters so small that you are creating stitches that will be stitching on top of each other. This causes holes in the fabric and thread breaks. Your stitch length must be a minimum of 1 millimeter in order for it to sew and not create holes.
Can you embroider without a hoop?
That is nothing to worry about as you can still embroider without hoops. All you have to do is maintain a decent tension on your fabric to avoid it from getting distorted. Another effective way of doing embroidery without a hoop is by using a scroll fabric. It helps in maintaining fabric tension and is also hands-free.