If you want to change the Tracking (the space between each letter in a word or group of words), there are a couple of shortcuts that allow you to do it without going into the Character Palette.

To set the tracking looser i.e. put more space between each letter, highlight the text with the Type tool that you want to affect, then press Alt-Right Arrow (windows) or Option-Right Arrow (Mac).

To set the tracking tighter, highlight the text and then press Alt-Left Arrow or Option-Left Arrow.

Tracking text by Jennifer Farley

To change the Kerning (the space between two individual letters), click with your cursor between the two letters and use the same keyboard shortcuts as above.

Kerning in photoshop - Laughing Lion Design

These shortcuts are the same in Illustrator.

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