A cape is land, not water. Land that juts out into water, but land all the same. Unless there's another meaning I'm not familiar with?
But yeah, that's why I always try to solve the whole puzzle before I enter the results. Red herrings definitely do get used, and occasionally even a red herring with 4 words in it. But there's only ever one way to make 4 groups of 4.
Bluff is etymology 2 here, completely unrelated to the term bluff you might already be familiar with. It means a cliff, basically.
Kitty, likewise, comes from etymology 2 in wiktionary. It's a term that can be used for a pot of money, especially in a gambling game, but personally I'm more familiar with it as the closely-related term in card games like Eucre and 500, where the kitty is a set of cards that are played face down, not in someone's hand, at the start of the game.