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In this video tutorial, viewers learn how to set up business letters in Microsoft Word. The first step involves adjusting the top margin from 1 inch to 2 inches. To do this, users navigate to 'Page Layout', select 'Margins', and then choose 'Custom Margins' to input the new top margin value. After pressing OK, the cursor will automatically adjust. The tutorial emphasizes the importance of these formatting changes before proceeding to alter font style, size, and spacing options to ensure a professional layout for the business letter.