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In this video tutorial, viewers learn how to set up business letters in Microsoft Word. The first step is to adjust the top margin from 1 inch to 2 inches by navigating to Page Layout, clicking on Margins, and selecting Custom Margins to input the new measurement directly. This change positions the cursor correctly with the new top margin. Next, the tutorial indicates the need to modify font style, size, and spacing options before proceeding further in the letter setup.