If they have opened up a return request through eBay, then there is an option in the return request to refund.
If the buyer wants to cancel an order, then on your orders page, find the item and on the drop-down menu there is an option to "Cancel Order" ... select that with the reason being that the buyer requested.
If you want to refund outside of the eBay processes, you can go on PayPal, find the item, and then issue the refund from that entry.
