Both cancellations and returns are a normal part of most sales operations.
Your options will depend on the order status.
You can cancel the order in Manage Orders or using Order Cancellation feeds. When you cancel an order, Amazon automatically updates the order status in the buyer's Amazon account and sends an e-mail notification to the buyer.
You can let the buyer know that the order is already on its way and ask the buyer to return it to you for a refund. When you receive the return, issue a refund if you had confirmed the shipment, or simply cancel the order if you had not yet confirmed the shipment.