The "refunded" in the status is only a note as to status, like pending, shipped, etc.
You can apply a CREDIT to a customers account for them to use against future purchases. You will need to go to whatever payment process you are using to send actual money back to the customer. Example, if using PayPal, simply log into your PayPal account, find the transaction and click on the "refund" button. Most gateway processing has a similar process.
Lee