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Think of an ancient illuminated text, or the start of a fairy tale. That "O" in "Once upon a time." In modern typography, that's referred to as a drop cap. It's easy to create them in Word if you want to convey elegance at the start of your document.
Select the letter you want to turn into a drop cap, and then click Drop Cap on the Format menu. The letter you selected appears in a text box, where you can select it and make changes if you want, just the way you would regular text.
You can only turn a single letter into drop caps; even if you select a block of text, only the first letter is affected. Also worth noting is that only the first letter of a paragraph can become a drop cap.