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In this video tutorial, the presenter explains how to create a modified block business letter using open punctuation, which involves omitting the colon after the salutation and the comma after the complimentary close. This contrasts with mixed punctuation, which includes both. To format a modified block letter, set a tab at 3.25 inches on the ruler, as the typing line is 6.5 inches long, making 3.25 inches the midpoint. The date and closing lines should be aligned to this midpoint. The tutorial demonstrates these steps on an already formatted letter with the correct spacing and layout.