Yes ChatGPT seems to not understand the makeup of words. We got it to make a game of hangman for us, and it did not go well. In the first game, the word was "table" and despite e, a being the first two guessed letters it did not credit us with a single correct guess. The second word was apple, and once again despite guessing e, a first, it told us we got none correct.

The funnier bit is I told it that we guessed both a and e, and it said it made a mistake and apologized. I also told it we guessed "p" as well (we didn't) and it apologized for that one as well. So basically, it definitely doesn't actually understand what's going on. However, some of the chats were very interesting and even productive.