Using the lyrics tool you can automatically hyphenate lyrics (using latex) and change accents. The latter is important, because using accented letters TeX will not know the exact dimensions of the lyrics syllable.

To invoke the lyrics tool select the text you want to hyphenate and invoke LilyTool>Source editing>Hyphenation and Accents.

You must have LaTeX set up correctly for the language of your lyrics. For setting up LaTex edit the file /usr/share/texmf/tex/generic/config/language.dat and delete the %! from the line that contains your language's name. Then save the file and run the command initex latex.ini. (On cygwin run this from the cygwin or from the lilypond shell.)

Other settings includes input encoding, hyphenmin (the minimum number of letters in a syllable), font encoding (you must select the appropriate encoding for your language). If in doubt with the settings, experiment or read some LaTeX documentation.

Note that TeX's hyphenation engine is not very suitable for this purpose, so it is almost sure that you must correct the hyphenation at some places.