What do the letters inside and outside the punnett square represent?

A Punnett square is used to find out the possible genotypes of the next generation after a cross from 2 parents. 

Usually, the letters outside the box are the genotypes of the parents, and the letter inside is the possible genotypes of their next generation. 

The image inserted is an example of a Punnett square (made in MS word). It shows the cross of parents with genotypes Aa, and thus leads to possible next generation with genotypes of either AA, Aa or aa. 

It is evolution, because we all have some of the same traits like eye color or shape or ears.