You change a letter, add a letter, or take away a letter from the word before yours. Example:
Later
------------
Latter
------------
Litter
------------
Sitter
------------
Bitter
------------
Biter
Get it?
I'll start...
Dog
Later
------------
Latter
------------
Litter
------------
Sitter
------------
Bitter
------------
Biter
Get it?
I'll start...
Dog