While reading, just use the stylus to double-tap and drag over the part you want to highlight. The dictionary lookup screen should pop up on the button, most likely saying that there's no definition, but that's okay -- there should be a button for highlighting. Tap that and it's done.
Sorry for not being more specific, as I'm relying on my memory here, but I've highlighted on the 350 many times and it's just a two-step process.
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