Words with the AE digraph (two letters written together to express one sound) are often misspelled by reversing the letters, for example, writing “Ceasar” for Caesar.
Once I had a high school student who spelled his name Micheal. The first time he turned in a paper, I corrected his name. When I understood that it was the spelling on his birth certificate, I learned (with difficulty) to control the impulse to correct it.
Here are five proper names that are spelled with the AE digraph:
An ae proper noun often misspelled is Israel. Here the ae is not a digraph, but two separate letters representing two distinct sounds: Is-ra-el.
Most of the ae words remaining in English have variant spellings, but a few are spelled only with the ae, even in American usage:
Some ae words have variant spellings:
The word faerie, can be used as variant spelling of fairy, but more often it refers to fairies collectively. With the variant spelling faery, it refers to the realm where fairies live, a land of enchantment:
Faerie is a perilous land, and in it are pitfalls for the unwary and dungeons for the overbold. –J. R. R. Tolkien On Fairy Stories in Tree & Leaf 11, 1964
The entry for the word daemon in Merriam-Webster states flatly, “variant spelling of demon.”
The OED entry for daemon gives this definition:
A [computing] program (or part of a program), esp. within a Unix system, which runs in the background without intervention by the user, either continuously or only when automatically activated by a particular event or condition.
As any fan of Philip Pullman’s His Dark Materials can tell you, neither dictionary has done an adequate job of defining daemon:
A dæmon is a type of fictional character in the Philip Pullman fantasy trilogy His Dark Materials. Humans in every universe are said to have dæmons, although in some universes they are visible as entities physically separate from their humans, and take the form of animals, while in other universes they are not. –Wikipedia, “Daemon (His Dark Materials)”
The different pronunciations of the ae spelling must be left to another post.