Penance was not a sacrament during the Anglo-Saxon period. Sacramental theology was much more fully developed after the twelfth century that it was during the period from 600-1100. To say that penance was a "sacrament" is to say that confession and penance did more than establish discipline in the church. A sacrament is, in Catholic theology, a means of bringing grace to bear on human endeavors, endowing them with merit not of human making. The sacraments confer grace; in the case of penance, the grace of the sacrament remits the punishment due to sins. So it is not simply that the penance seeks to reform the sinner; the acts of confession and penance themselves also bring the sinner the favor of God's grace, restoring him or her to the ranks of the faithful and the saved.
Sacraments are also powerful instruments in the hands of those who perform them, priests. Alongside the rise of sacramentalism is the rise of "sacerdotalism," the growing power of priests as intermediaries standing between human affairs and God's grace.
To learn about the theology of the sacraments, which is an important barometer for measuring the growth of sacerdotal power in the Middle Ages, you should consult the entries under "Sacraments" in the New Catholic Encyclopedia or a comparable source. In Medieval Handbooks of Penance (in the Penance module bibliography), McNeill and Gamer trace the history of the sacraments (see 15-18). We note in the narrative a close connection between penance and the Eucharist (communion) because penance was a cleansing that was necessary before receiving the Eucharist, and was therefore required before one when to communion. In the later Middle Ages, annual confession was tied to the requirement that the Eucharist had to be received once a year. Another sacrament closely connected to penance is the anointing of the sick.
Which were the first sacraments recognized? Which sacraments are connected? How can you link any of the sacraments to the literary texts we have read thus far?
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