To change the status of an applicant you will first need to find the applicant whose status you want to change and click on their name. If you are looking at a job application you will see a grey bar at the top of the candidate profile 'Current application status for...'
NOTE: If you don't see this bar you are looking at the candidate's general profile and not their actual job application. Keep in mind candidates may have zero, one or 50 applications so you need to check what job it is the application status refers to.
Once you're on their profile, you can click on the drop down menu and select the applicants status. If enabled this will send out an auto-email (AS01) to the candidate letting them know their status has changed.
When a candidate has a status set, you can filter the candidates by their actual status in the Applications menu. Please see the following article on how to edit application statuses.