As faculty or staff, you may be asked to serve as a reference for students seeking employment, graduate school admission, or scholarships and awards. With your agreement to serve as a reference, be aware of legal issues that should guide your writing. Please review the Illinois State University FERPA policy from the Office of the University Registrar before writing a reference letter in order to ensure you are in complete compliance.
Stick to factual observations. You will want to speak primarily from your own experience and impressions, not hearsay, in providing "testimony" on behalf of a student. This is especially true if such information would compromise the otherwise positive impact of the letter. Clearly, you have license to offer your professional opinion in speculating about the candidate's potential, or the likelihood of future accomplishments, based upon your sense of their talent, motivation/drive, goals, etc. Overall, it is best to offer comments that are "performance-based" in the context of the requirements of the field the student wishes to enter.
Indicate how long and in what context you've known the candidate. Some perspective on your behalf will assist the reader in evaluating the range and depth of your observation. You might request the candidate provide you with a current resume in order to have a better overall perspective on his/her accomplishments/activities in recent years. It may be a useful reminder for you of the above as you shape the thoughts you wish to convey.
Writing on department or office letterhead is certainly appropriate unless the candidate has a specific form (from a graduate school or scholarship source) on which to write the letter.