You’re spelling your name for someone on the phone and you say “N as in Never”. What does as in mean here? Could you say “N as in fun”?
It means: 'N' as it is used in 'Never'.
Whether you could use it as in your suggestion is arguable.
People expect you to be referring to the first letter in a word when you are specifying a single letter.
However, if you were specifying a word, or syllable, you could certainly say something like: "'key' as 'donkey'"