Like a rich text editor such as Microsoft Office Word? Select some text, click on bold and the selected text appears bold? That's also called WYSIWYG and it takes monumental efforts to implement in a way that custom BBCodes such as mentions are supported. I think there are plans to add this feature to phpBB 3.3. Until then, mChat will work the same as the regular editor you use for composing posts and PMs. Except for the sticky color option of course.
Support area for phpBB's mChat extension