how in the heck to get it to read string the strings from a file,
Your code uses next() to read one word from the file. Are all the words on the same line or is each word on a separate line? If on separate lines you should use the nextLine() method to read them.
convert it to a char matrix
Can you explain what you mean by a char matrix? Given the String: "HELLO" what would a char matrix look like for that word?
Look at the pattern that you printed out that the program is supposed to generate. Replace the letters in the word with numbers so you can easily see what is printed on each line. The double Ls might confuse you. Using numbers should make it very clear what goes on each line.
What happens when you execute your code?