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In this video tutorial, viewers learn how to set up business letters in Microsoft Word. The first step involves adjusting the top margin from 1 inch to 2 inches. This is done by navigating to the page layout, clicking on margins, and selecting custom margins. Users should enter "2" for the top margin and press OK, which moves the cursor down accordingly. The next step is to change the font style, size, and spacing options before continuing with the letter formatting.