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In this tutorial, Jeff explains how to create smiley faces in Microsoft Word using two methods. The first method involves typing basic emoticons, such as colons, semicolons, and parentheses, which can form simple smiley faces. The second method focuses on utilizing Word's AutoCorrect feature. Jeff demonstrates how to access this feature by going to Tools and selecting AutoCorrect Options. He emphasizes the importance of having the "Replace text as you type" setting enabled, which automatically transforms typed emoticons into smiley faces as long as the appropriate settings are in place.