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In this video tutorial, the importance of reducing the file size of a Microsoft Word document is emphasized for faster loading times, easier sharing, and optimizing storage space. The process starts by selecting and compressing pictures within the document using the compress pictures icon in the picture format tab. It is essential to uncheck "apply only to this picture" and check "delete cropped areas of these pictures" in the compression options. Saving pictures at lower resolutions is also recommended. Click on file, then options, and advance to access these settings.