You can replace a grapheme by putting your finger on a grapheme (from the available graphemes above the word making area), waiting until it pops up to pick it up, and then replacing a grapheme in the word you have written by dropping the new grapheme on top. You can also remove a grapheme from a word by holding your finger on it until it pops up, then moving it upwards and letting it go.

Please take a look at this video and let us know if you are still having trouble: