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The dictionary lookup does do hyphenated words and compound words. But, the word you are looking for has to be in the dictionary. And it has to be similar enough to what you selected to be found.
As an example, the book I am reading has "walk-in". When I selected that, the dictionary suggested "walkin". A similar thing happened with "bleary-eyed" and "time-consuming". It looks like Merriam-Webster has a different opinion on compound words than the author.
The dictionary will also find non-hyphenated word pairs. From a past look-up, I know that "Buffalo soldier" is in the dictionary.
If you want to check for a word that isn't in a book, you can use the search to do a dictionary look-up. If you do this, it shows the matches in the dictionary for what you are typing. There are some languages that do not allow this due to licensing, but I think French is the only one left like this.
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