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In this tutorial, Clay Preston explains how to use shading and highlighting in Word. He starts by selecting a color, demonstrating with yellow. To shade, he covers the entire line using the fill tool (bucket icon) to apply color. For highlighting, he shows how to select a word and use the paintbrush tool to apply color specifically to that word, without affecting the entire line. The tutorial emphasizes the difference between shading and highlighting to enhance text formatting. He concludes by encouraging viewers to like and subscribe if they found the video helpful.