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In this video tutorial, we learn how to set up business letters in Microsoft Word. First, we adjust the top margin from 1 inch to 2 inches by going to the Page Layout tab, selecting Margins, and choosing Custom Margins. Here, we input 2 inches for the top margin and press OK. After this adjustment, we notice that the cursor moves down to accommodate the new margin. The tutorial emphasizes that the next step involves changing the font style, size, and spacing options before proceeding further with the letter formatting.