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Word and Outlook can work together with varying degrees of success to help you generate properly addressed letters and envelopes. Outlook's Actions menu, in fact, includes a New Letter to Contact choice that ostensibly does exactly that. What it actually does, however, is kick off Word's Letter Wizard—an option that always works better when started from within Word. We don't recommend that you choose this option from Outlook; instead, always start with Word when you want to create a letter or envelope with the Letter Wizard.
→ For full details on the only effective way to use Word's Letter Wizard, see "Creating and Editing Letters."