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In this video tutorial, the creator demonstrates how to create a table of contents in Microsoft Word. They start by adding random text to an empty document using the rand() command. Then, they add headings such as "Introduction" at different levels (level 1, level 2, level 3) to the document. To generate a table of contents, they recommend assigning different styles to the headings based on their desired level. This allows for easy and automatic creation of the table of contents in the document.