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In this video tutorial, viewers learn how to properly set up business letters in Microsoft Word. The first step is adjusting the top margin from 1 inch to 2 inches. To do this, navigate to 'Page Layout,' click 'Margins,' and select 'Custom Margins,' where you can enter 2 inches for the top margin. After confirming this change, the cursor will reflect the new margin. The next step involves changing the font style, size, and spacing options, with further instructions provided after these initial adjustments.