How to return a string from a function? What should be the return type in such function

The common method is to allocate memory for the string using malloc() and returning a char* pointer to that allocated memory. The calling function is then responsible for freeing the memory:

char *SomeFunc()
{
    // Determine required size and allocate
    // Don't forget to add one for the terminating NULL char
    char *buf = (char *)malloc(requiredSize);
    // Write to buf here ensuring that requiredSize is not exceeded

    // Calling function must free the memory
    return buf;
}

In some cases you can also use a static char[] buffer. Then return a const char* to that buffer. But you should know about the possible problems witch such functions (fixed size, not thread safe).

const char *SomeFunc()
{
    static char buf[SOME_FUNC_STATIC_BUF_SIZE] = "";
    // Write to buf here ensuring that SOME_FUNC_STATIC_BUF_SIZE is not exceeded
    return buf;
}

Another solution is passing the buffer and its size as arguments:

char *SomeFunc(char *buf, size_t size)
{
    // Write to buf here ensuring that size is not exceeded
    return buf;
}

With C++, use a C++ string type like std::string instead and return that. Then you don't have to care about freeing memory:

std::string SomeFunc()
{
    std::string buf;
    // Assign to buf here
    return buf;
}