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In this video, the tutorial demonstrates how to create a modified block business letter using open punctuation, which omits the colon after the salutation and the comma after the complimentary close. This differs from mixed punctuation, which includes these punctuation marks. To set up a modified block letter, set a tab at 3.25 inches on the ruler, as the typing line is 6.5 inches long, making 3.25 the midpoint. The date line and closing lines should also be aligned to this midpoint. The instructor shows how this can be done either before starting or after typing the letter, ensuring proper formatting and spacing between sections.