Understanding Your Formatting Options
Every Word document consists of components arranged in a strict hierarchy that is unrelated to the way you create a document. Every Word document follows a predictable hierarchy, consisting of one or more sections, which in turn contain one or more paragraphs, each of which consists of one or more characters. Although it's possible to select an entire document and apply formatting to it, Word doesn't actually format at the document level; instead, it applies your changes individually to characters, paragraphs, and sections within the document.
Word allows you to apply formatting directly, by making a selection and then using the Styles and Formatting task pane, the Format menu, or the Page Setup dialog box. You can also re-use formatting that appears elsewhere in your document via the task pane in an ad-hoc fashion. Or you can define collections of character or paragraph formatting choices, save them as named styles, and then apply the style to selected characters or paragraphs.
Character Formats
Character formats apply to letters, numbers, and punctuation marks. The most common formatting options that apply to characters are font-related: the font name, size, and color, for example, as well as attributes such as bold, italic, underline, and strikethrough. If you copy or move a formatted character from one part of a document to another, the formatting travels with it.
→ To learn more about formatting, see "Common Formatting Options".
Three special characters merit close attention:
Each space is a character. Although you can't see its color, you can easily note its size: A 10-point space takes up much less room on a line than a 48-point space.
Within a Word document, a tab is a character. When Word encounters a tab character, it shifts to the next tab stop before continuing to lay down text.
A paragraph mark is technically a character as well, although you can't print a paragraph mark. By default, Word does not show paragraph marks on the screen, but they're always there. You can select, copy, move, or delete paragraph marks.
→ You can check the Show All Formatting Marks box at the bottom of the Reveal Formatting task pane or click the Show/Hide button to make paragraph marks and other formatting characters visible; see "Using the Show/Hide Button".
The most common character treatment options are available via toolbar buttons and keyboard shortcuts. For example, you can click the Bold, Italic, or Underline buttons on the Formatting toolbar, or use the shortcut key combinations Ctrl+B, Ctrl+I, Ctrl+U, respectively, to toggle these formatting options for selected text.
Tip from 
Here's a formatting shortcut even many experienced Word users don't know about. If you position the insertion point within a word and click a formatting button or key combination, the formatting applies to the entire word. In this case, a "word" is any series of characters delimited on each end by a space or punctuation mark. Use this option to change the font, size, or attributes of a word without selecting it first.
When you start typing in a new, blank document, Word's default setup uses 12-point Times New Roman. To change the default font and size, choose Format, Font, select the font you want to use as a default, and click Default (see Figure 14.3).
Figure 14.3. Change the default font for all documents by selecting the font you prefer and then clicking the Default button.
For normal correspondence, consider changing the font—Garamond, for example, is much more striking visually—and reducing the point size down to 11, or even 10. Although 12-point is the Word default, many people find it too large for business correspondence. Many experts feel 11-point type is an excellent compromise.
Tip from 
If you usually share documents with other users instead of printing them, make sure you pick a default font that others are likely to have, such as one of the default Windows or Internet Explorer fonts.
Character spacing can be changed in any number of ways: moving characters above or below the baseline (superscripting and subscripting); magnifying or reducing selected groups of characters (scale); and even squishing together predefined pairs of letters that fit well together—such as VA—to minimize the whitespace between them (kerning). All these are discussed in the next chapter.
→ To learn more about fonts and character formatting, see "Using and Managing Fonts," and "Changing Character Attributes".
Word also supports highlighting, a method of changing the background color much as you would with a highlighting pen. Although highlighting is rarely used in final documents, it's a handy way to draw attention to text during reviews, or to emphasize pieces of text for your own scanning.
If you're exchanging drafts of a document with a coworker, for example, use a yellow highlighter to flag sections where you have questions or comments. If several people are reviewing the same document, each one can use a different color so others can see at a glance who marked up specific sections. Although you can formally track changes to a document, highlighting comes in handy in informal situations.
→ To work with documents in a group, see "Sharing Documents".
Although highlighting isn't, strictly speaking, a character format (because it really affects the character's background), it behaves much like a character format: If you copy or move highlighted characters, for example, the highlighting travels with the character.
Caution
Highlighting is not removed when you use the Clear Formatting option on the Styles and Formatting task pane. Internally, Word does not treat highlighting as if it were character formatting.
To apply highlighting to characters within a document, you can either make a selection and then click the Highlight button on the Formatting toolbar, or click the Highlight button, and then "paint" the highlighting on characters. Click the drop-down arrow to the right of the Highlight button to choose one of 15 available colors. The pointer changes to a highlighting pen with insertion point; to turn off highlighting and return to normal editing, click the Highlight button again, or press Esc.
→ For advanced formatting tips, see "Changing Text Formatting".
If you open a document that contains fonts that you don't have on your machine, Word provides a way to specify which fonts should be substituted for the missing ones. Choose Tools, Options, Compatibility, and then click the Font Substitutions button. In the Missing Document Font box, select the font you want to change. Then, in the Substituted Font drop-down list, choose the font to replace it.
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Although the fonts you specify won't be, literally, substituted for the missing ones—the document file itself isn't changed—Word uses the fonts you pick to display the document onscreen, and to print it.
Paragraph Formats
Each time you press Enter, Word inserts a paragraph mark and starts a new paragraph. By definition, a paragraph in Word consists of a paragraph mark, plus all the characters before the paragraph mark, up to (but not including) the preceding paragraph mark. Paragraph marks are a crucial part of Word, because they contain all paragraph formatting. When you copy, move, or delete a paragraph mark, the paragraph formatting goes with the mark.
Paragraph formatting includes alignment (left, center, right), indenting, bulleting, and spacing—both between lines within a paragraph and between paragraphs. It also covers background colors and shading, and boxes and lines drawn around and between paragraphs. Surprisingly, tab stops are also considered paragraph formatting—you don't specify a set of tab stops for each line on a page, as you would with a typewriter; instead, tab stops remain uniform throughout an entire paragraph.
When you press Enter to create a new paragraph, the new paragraph usually takes on the formatting of the earlier paragraph. For example, if you position the insertion point with a right-justified paragraph and press Enter, the new paragraph will also be right-justified.
Direct Formatting Versus Styles
For simple, short documents, it's often easiest to apply formatting directly to paragraphs and characters, either through the Format menu, or using the Styles & Formatting task pane. But when a document extends beyond a few pages, or when consistent formatting is crucial, you should use styles instead. Styles have one great advantage over manually applied formatting: If you change the style, those changes ripple throughout the document.
Word supports two kinds of styles: character styles, which include only character formatting; and paragraph styles, which combine paragraph formatting information with character formatting.
→ To learn more about styles, see "Formatting Documents with Styles".
For example, you might establish a paragraph style for a marketing report called ChapterHeading, and make it Arial 24-point bold (that's the character formatting part), with 6 points of space after the heading (the paragraph formatting part). As you're typing, every time you start a new chapter, you type in the title of the chapter and apply the ChapterHeading style. The day before your marketing report is to be sent to the board, you decide it will look better if you use a different set of fonts, and you decide to change the chapter headings to Garamond 20-point italic with 12 points of space after the heading.
If you know that every chapter heading in the marketing report is formatted with the ChapterHeading style, you can change all the chapter headings in a few seconds, by changing the settings for the ChapterHeading style. On the other hand, if you had applied formatting manually, you would have to scan the entire document and change the formatting of each chapter heading manually; you run the risk of missing a chapter heading, which results in an unprofessional look for your document.
→ Line and page breaks, indents, tabs, and other paragraph formatting are covered in depth in "Changing Paragraph Formatting".