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In this tutorial, Ella Lima demonstrates how to add a letterhead in MS Word. Start by going to the insert tab, click on picture, browse for the letterhead file, and insert it into the document. Adjust the size and position by right-clicking on the image, selecting size and position, setting the height and width to 100%, choosing the text wrapping option behind text, and aligning horizontally and vertically to the page. This ensures the letterhead fits perfectly on the document.