A word is hiding behind the blanks, and the clue tells you what it means. Guess letters to reveal it, but every wrong letter lets air out of the balloon. Too many wrong guesses and it pops! You have three balloons, and harder difficulties give each one less air.
This is hangman with a balloon instead (kinder, and more fun to watch shrink). Guessing letters makes children think about which letters commonly go together (start with vowels!), and the definition clue means every word practised is also a word understood.