If speech comes out garbled and you aren't sure what your loved one is trying to say, don't focus too much on figuring out the exact meaning. This may go against your natural impulses and make you feel like a failure. But it's freeing to realize that even without a perfect understanding of the message, you can still fashion a meaningful response that your loved one will appreciate.
Respond to the emotion behind the words. This approach is the best way to "get it right" and will make both of you feel better.
Use tone and expression to help you get at the real meaning.
If your loved one sounds agitated or upset, try to figure out the cause and respond to that. Could he or she be cold? Hungry? In need of toileting?
Be reassuring. If your loved one is smiling as he speaks but you have no idea what the words mean, smile back and offer a comment that's pleasant and innocuous in return. Take in and treasure the emotion itself.
Don't beat yourself up over the ineffectiveness of supplying paper or chalkboard or devising a new system of pointing to letters. Methods that work for stroke victims are useless with dementia, because your loved one can't learn a new system or manipulate writing materials.