The ways to do this are hot die stamping, wet stamping, hand tooling, laser engraved relief.
1. Hot die stamping - you need a brass die (brass is best) - A heat source - something to add pressure and be able to remove the die from the material quickly. Works on any leather or vinyl.
2. Wet stamping - works only on veg tan tooling leather. Stamp can be made of delrin or other suitable polymer via laser engraving or cnc cutting. Stamps also work from brass or stanless steel. - need something to add pressure. Vice, press, drill press, two pieces of lumber and lag screws, etc.... people make all sorts of homemade presses that work great. Advantage to using this type of leather is that it can also be textured and colored any which way you choose.
3. Hand tooling - see above - done with hand stamps and a mallet.
4. Laser Relief - using a laser you can laser engrave around the letters leaving an area where the original leather stays up. Depending on the actual skill of the designer this can look very cool.