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In this video tutorial, viewers learn how to properly set up business letters in Microsoft Word. The first step is to adjust the top margin, which is initially set to 1 inch. To change it to 2 inches, users go to Page Layout, select Margins, then Custom Margins, and type '2' in the top margin box before pressing OK. Following this, the tutorial advises changing the font style, size, and spacing options to enhance the letter's appearance. The focus is on ensuring a professional setup before starting to compose the letter.