A big name, made small
An acronym shortens a name or phrase using its first letters or parts, often making a word you can say. NASA is a familiar example.
Four letters do the work of a much longer name. It is rather like packing a large suitcase into a tiny word.
NASA takes a shortcut
NASA stands for National Aeronautics and Space Administration. Follow the initials of the four main words: N, A, S and A.
The small word keeps those useful letters while leaving most of the original phrase behind. Even the word “and” stays at home.
Say it or spell it?
Read NASA as a word, then say F, B and I separately. In the narrower distinction, NASA is an acronym and FBI is an initialism.
Merriam-Webster also records a broader use of acronym that includes initialisms. So the label can depend on how strictly someone is using it; the useful clue is whether you say the word or spell the letters.
English has several shortcuts
Abbreviation is the wider term for shortened forms. An acronym has a particular recipe: take initial letters or parts from a longer expression.
Compare brunch, a blend of breakfast and lunch. That joins pieces of words instead. Same enthusiasm for saving space, different word-making trick.