When you click on a letter in the on-screen keyboard window or choose a prediction from the Prediction window, Penfriend XL will simulate one or more keystrokes as if from the keyboard, and send them to the window it believes to be the appropriate active window.
Penfriend XL can sometimes get a little confused about which window should receive the keystrokes, with the result of them not appearing anywhere. As a simple rule, you should always click in your word processor document window when you start using Penfriend XL, or just after you have handled any other windows such as dialogue boxes. If there is no known focus window but you have typed any letters recently, Penfriend XL will send its simulated keystrokes to the same window as the real keystrokes were sent to. If you have clicked the mouse in a window more recently, Penfriend XL will send keystrokes to that window.
You should be careful, after moving any of the Penfriend XL windows, to click again in your word processor window. Clicking in the body of a Penfriend XL window will activate that window (this is enforced by Windows) but Penfriend XL will pass activation straight back to the last window to be active. This may cause a brief flicker of window title bars. However, clicking in the title bar of a Penfriend XL window, for example to move it, will activate that window and it will not be de-activated immediately.
You may also be interested to read about Function Key Interception.