Ly is the twentieth letter of the Hungarian alphabet. Its Hungarian name is elipszilon /?l:ipsilon/ or ej /?j:/. Now, it represents the same phoneme /j/ (palatal approximant) as the Hungarian letter j, but historically, it represented the different phoneme /?/ (palatal lateral approximant).
It is used this way only in Hungarian. In Hungarian, even if two characters are put together to make a different sound, they are considered one letter, and even acronyms keep the letter intact.
The combination lj (considered two separate letters, L and J) is also common in Hungarian and is even pronounced /?/ by many speakers. However, even it is sometimes subject to the same reduction to /j/ that ly has been, mainly if it is at the end of a word.
Originally, the digraph letter ly was used to represent the palatal lateral /?/, just as the digraph letter ny is still used to represent the palatal nasal /?/. However, in the eastern dialects as well as in the standard dialect, the phoneme /?/ lost its lateral feature and merged with /j/ (akin to Spanish yeísmo). The Hungarian letter ly came to be pronounced the same as the Hungarian letter j. In the western dialects, /?/ lost its palatal feature and merged with /l/ (alveolar lateral approximant). In the northern dialects, the phoneme /?/ has been preserved.
These examples are Hungarian words that use the letter ly, with the English translation following: