The Dispatch Status means that an order has been fulfilled and sent to your customer.
You can cancel an order at any time before it has been moved into the Dispatched status. The order must be unapproved for it to be cancelled.
To Unapprove an order, simply open the order and go to the Order Payments Section at the bottom of the order page.
If you need to cancel an order that has already been dispatched, you must first put the order on hold. Go to the bottom of the order page and press Hold or Edit Order.
This will move the order status to On Hold, from which it can then be cancelled.