Yeah, it's pretty bewildering. I didn't find any instructions, but think I figured out most of it
Red area: This row is where you should form words.
Yellow area & green area: Not sure if they differ in any meaningful way.
Letters along the margin: Very confusing, I believe they are meant to remind you that the letters EARI (3p), OTNS (7p), LCUD (11p) and PMHY (15p) all score differently in the words.
Why does it occasionally put a new letter into a cell: When you press fire you claim the word in the red row. If it is not a valid word, a new letter is put in the cells. When all cells are full it is Game Over. New letters also appear at regular intervals. The intervals grow shorter on later levels.
I hope this helps
