WYSIWYG editors like CKEditor do that. It's never going to be exactly like Word, but the same sort of thing. I know that CKEditor is very customizable, too, so there are lots of options you can include/create. You can also 'import' Word doc layouts.
Are you using any particular CMS with this? Some of them have special plugins that harness these editors for their own purposes, in sme cases extending/refining them.