Once you've found a Lost Word while playing a level, you need to inscribe it. Use the Library button at the bottom of the Home Screen to travel to the Library.:

Once in the Library, tap the floating book to enter the bookshelf. The book-button will have a red dot if you have any Lost Words to be inscribed, or if you have any new books of Lost Words that you haven't looked at yet:

Once in the bookshelf, any book with a Lost Word to be inscribed will have a red dot on it. Tap the book to open it:

Finally, tap the word to inscribe it:

If you have additional Lost Words to inscribe, there will be a button at the bottom of the book that takes you to the next book with a word to be inscribed.

Inscribing words give you bonus coins! The bonus is 10 coins for a 2-letter Lost Word; 20 coins for a 3-letter Lost Word; 30 coins for a 4-letter Lost Word, and so forth.