Use Easy for words reading right or down. Medium adds diagonals running down-left and down-right. Hard permits all eight directions, including backwards. Grid size and difficulty are separate controls: a large grid offers more hiding space without changing the directions.
A 15 by 15 grid is a useful starting point for a short classroom list. If a word is longer than the grid width, it cannot fit, even diagonally: a straight diagonal in a square still contains only that many cells. Increase the size or shorten the entry.