What the heck is an initialism? It's a type of abbreviation, but it's different from an acronym.
Sometimes it's not clear whether a word is an initialism or an acronym because people say it different ways. Take the abbreviation you often see on the Internet for "rolling on the floor laughing." It's ROFL. I always pronounce it "roffle" as if it were an acronym, but when I surveyed my Twitter friends, I found that about half of them pronounce all the letters: R-O-F-L. So to people like me it's an acronym, and to people who say the letters it's an initialism. I don't have a good answer for what to call words like that. I guess we should use the broader category and just refer to them as abbreviations. And, of course, some people had to also point out that it's silly to say these kinds of text messaging/Internet acronyms out loud in the first place.
You may be wondering whether you need to put periods after each letter in an acronym or initialism. There's no strict rule. Some publications put periods after each letter, arguing that because each letter is essentially an abbreviation for a word, periods are necessary. Other publications don't put periods after each letter, arguing that the copy looks cleaner without them, and that because they are made up of all capital letters, the fact that they are abbreviations is implied.
Finally, when you're using any kind of abbreviation in a formal document, it's important to spell out the entire phrase the first time you use it and put the abbreviation in parentheses after the words so people know what your abbreviation means. This obviously doesn't apply to things like text messaging, but when you're writing in a professional way, you should never assume that people know what your abbreviation means. Using abbreviations without defining them makes your writing sound jargony and insular.
When you're spelling out the phrase, the first letters aren't capitalized unless they would normally be capitalized. For exampe, if you're writing about a measurement called the average daily volume and you put "ADV" in parentheses after the phrase, you don't capitalize the first letters of "average daily volume" in the text even though you capitalize the letters in the abbreviation. The letters in the words are lowercase just as they would be if you were writing them and not introducing an initialism.