I think now I am understanding the script. However, I ended up commenting out the @guesses portion (mainly because I think @guesses is useless part and script still works)..
Was author wrong to put that code there(since it does nothing?).

#!/usr/bin/perl -w

   @words = qw( hi no );
   @guesses=();
   $wrong=0;

   $choice=$words[rand @words];
   $hangman="0-|--<";

  @letters=split(//, $choice);
  print "\@letters is @letters\n";
  @hangman=split(//, $hangman);
  @blankword=(0) x scalar(@letters);
  print "\@blankword is @blankword\n";
  OUTER:
      while ($wrong<@hangman) {
          print "whielloop\n";
          foreach $i (0..$#letters) {
                  if ($blankword[$i]) {
                          print $blankword[$i];
                  } else {
                          print "-";
                  }
          }
          print "\n";
          if ($wrong) {
                  print @hangman[0..$wrong-1]
          }
          print "\n\n\n\n Your Guess: ";
          $guess=<STDIN>;  chomp $guess;
         # foreach(@guesses) {
         #         print "foreach loop\n";
         #         print "\$guess is $guess\n";
         #         print "\$\_ is $_\n";
         #         next OUTER if ($_ eq $guess);
         # }
         # print "\@guesses is @guesses\n";
         # $guess_scalar = "@guesses";
         # print "\$guess_scalar is $guess_scalar\n";
          #$guesses[@guesses]=$guess;
         # push @guesses, $guess;
          $right=0;
          for ($i=0; $i<@letters; $i++) {
                 print "\$i is $i\n";
                 print "in the forloop\n";
                  if ($letters[$i] eq $guess) {
                          $blankword[$i]=$guess;
                           print "\$blankword\[\$i\] is $blankword[$i]
+\n";
                          $right=1;
                  }
          }
          $wrong++ if (not $right);
            print "\$wrong is $wrong\n";
          if (join('', @blankword) eq $choice) {
                  print "IF loop\n";
                  print "You got it right!\n";
                  exit;
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