Click on 'File' at the menu bar and then click on 'Save As.' Name the document. Then, just below the file name is the dialogue, 'Save as type:'. Choose 'Document Template (*.dot).' You'll notice the directory at the top of the dialogue box changes to 'Templates.' Click 'Save' and you're done.
Click on the the template. At the bottom right of the dialogue you'll see two options: 'Document' and 'Template'. If you want to use the letterhead to send as a document or letter, choose 'Document.' If you want to edit the template, choose 'Template.' When you choose 'Document,' it gets saved as an MS Word document.