1. Click on the envelope you want to transfer money from. It should be highlighted.
2. Click on the Allocate Funds button ().
3. Allocate funds as you normally would. Your source will be the highlighted envelope instead of the unallocated income.
Quick answer: Highlight the envelope you want to delete, then click the delete button ().
Long answer: If you delete this way, you could mess up your budget if your envelope has a balance or you have transactions assigned to that envelope. If you have used your envelope at all, I recommend archiving the envelope instead. See this blog post on how to archive an envelope.