There are two ways to play. In Puzzle Mode, place the arrows on the map before the sheep begin to move. The sheep start immediately in Action Mode, and you're free to add and remove arrows at any time. It can occasionally be difficult to predict where arrows will end up, as they snap to an invisible grid. While not a huge issue, it can cause some unlucky sheep to slip away unnecessarily and could have been prevented by also snapping the mouse cursor to the grid.
Puzzled Sheep's cute graphics and proven concept make it a joy to play but, with only 20 levels to the demo, the fun doesn't last as long as you might like. I would have appreciated a note or popup informing me that the demo levels were up; after clearing the tenth level of either mode the game just stops responding to the next level button, which at first gives the impression that you've encountered a bug or are being forced to sit through an ad.