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In this video tutorial, viewers learn how to correctly set up business letters in Microsoft Word. The first step is adjusting the top margin from 1 inch to 2 inches. To do this, go to Page Layout, click on Margins, and select Custom Margins, where the top margin can be changed to 2 inches by typing the value directly. After that adjustment, the cursor will reposition to reflect the new margin. The tutorial implies further changes will be made regarding font style, size, and spacing options to complete the formatting before starting to type the letter.