Lettermail does not have tracking. A return can only be done with lettermail if this is a situation where there isn't an actual case open, and both you and the buyer are on the same page about the return being sent untracked. Either the buyer would have to cover the cost of lettermail up front, or you would have to send the buyer money to cover the cost of lettermail. At least in Canada, there is not a way to print an individual lettermail label on demand.
If there is a case open, it will not be sufficient to satisfy eBay's standards that you resolved the case. I'm unsure if you could still technically arrange a return via lettermail with a case open and a receptive buyer, but I don't think it would be worth the hassle and risk of a defect if the buyer gets impatient and escalates the case after they have returned the item.
I am guessing this is a situation where the item is a low cost item, and the cost of a return is prohibitive to you as a seller. At that point, if you're sure this is a scenario where the buyer is acting in good faith, you might just provide a refund and try to turn it into a positive experience. The most blatant example of this would be if you as the seller made a mistake with the order. At that point, why go out of your way to create a lose-lose situation where you have to pay more than the item is worth for a label and the buyer has to put further time into an issue they did not cause.
On the other hand, if you have some indication the buyer is acting in bad faith, then it obviously becomes a lot more complicated because you probably won't feel right about providing a refund without the buyer having to return the item, but making them return the item will end up costing you both in money and time. In this scenario, I think it's always better to make them return the item. At the very least, if you're certain they are acting in bad faith you are discouraging bad buyer activity by making them work for their scam. There is also the possibility that they are fishing for a free item via you not providing a label and the case getting escalated. So once you provide the label, if they want the item they might choose to never follow through with returning it. In which case, most services like Shippo will allow you to refund the unused label.
As far as where or how you print the label, it doesn't matter as long as you can provide the buyer the label that they can print out to resolve the case. Some services will provide you with a PDF, in which case you can use windows snipping tool to easily create a .JPG. If you are on a recent version of windows, just type snipping into the bottom left search bar beside the windows icon.
If this is a scenario where it is a US buyer and you need to print a USPS label from Canada, creating a Shippo account and using the manual label function is the easiest way to do it.
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