The transition tool, represented by a line connecting two red circles in the toolbar, allows you to add transitions between states of the automaton. After selecting it, you can add a transition connecting two states by dragging from the start state to the destination state. If the transition is to be a self-loop, just click on the state.
You can also bend states with the state tool by dragging a state from its current location to another location.
After you create a state, you'll want to designate to what letters it applies. Right-click on the transition, and check the letters.
To delete a transition, right-click (or command-click) it and select Delete from the popup menu.