It is never a good idea to shame or scold a child about their sexuality as this can lead to major feelings of guilt tied to their sexuality.
That said, I think you need to sit down with your son and find out some things from him. First, was this a letter he gave or intended to give to a girl or was he just writing? What does he know about what it means to have sex?
You should also take the opportunity to find out from him if anyone has ever touched him in a sexual way.
It is possible that he has picked up on these things from TV, other kids, or some other place, but you will want to rule out the possibility that he has been sexually abused by someone, as this is a rather abrupt letter for a 7 year old.
I would also take advantage of the discussion and let him know where your stand morally about sexuality. When is it okay to have sex? Would giving a girl a letter like this be appropriate? When (when he's married, never, when he is older and in a significant relationship, etc)?
If you have any further questions, please don't hesitate to ask.
Then I would definitely not worry about making too big of a deal about it. I'd just take the opportunity to reassure him that what he feels is fine and to educate him on etiquette, family values, and also take a moment to discuss private places and what he should do if someone were to touch him in a way he didn't like.
I wouldn't worry too much, it sounds like it was just a totally innocent thing he was doing and at this point I'd put more emphasis on the fact that there is nothing wrong with him for having these types of thoughts.