From James Marshall,
Your Guide to Word Processing.
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Although it is generally a good idea to save any document you wish to use as a template with the .dot extension, a quick way to make a document a template is simply to save it in the Templates folder. By default, any document saved in this folder functions like a template.

1. Create a document you wish to use as a template
2. Click Save or use the Ctrl + S shortcut key
3. In the Save dialog box, navigate to the templates folder (the path is generally C:\Documents and settings\user name\Application data\Microsoft\Templates)
4. Click Save

To create documents based on this template, select New from the File menu. In the New Document task pane, click on General Templates… You should see your document under the General tab. Highlight it and then click OK. You can also open the template from the Program menu in Windows. Simply click New Office Document. You will be presented with the Templates dialog box, from which you can select your document on the General tab.

One of the benefits of creating a template using the preceding steps is that you can easily make changes to the template. Opening the document from Windows or by using the Open command in Word will open it as a regular document, allowing you to make changes that will then be reflected in the template.