Choosing a font and setting up styles
As with margins, some POD imprints will have specific fonts they like or don't like. Lulu specifies that if you plan to upload a Word document for them to convert, you must you one of the following: Arial; Book Antiqua; Bookman Old Style; Century, Courier; Garamond; Palatino; Tahoma; Times New Roman; Verdana; Symbols. (If you're uploading your own PDF you can use any font you like as long as you've embedded it. This isn't something I'm going to go into here as it's not a process I've used myself.)
Once you know what your options are, pick the font you like best. Some of them take up more space than others, even at the same size, so it really is a matter of personal preference. Something that looks similar to a traditionally published book is probably the best choice. You may want to use a different font for titles or specific items within your text.
This article from desktoppub is a good guide as to how to choose a font sized based on your target audience. Generally 10-12 point is a good choice, going larger for an older or younger audience.
Now you have your font choices, it's time to set up styles. This is done via the Format menu in Word. You can set up a style to be a particular font and size, with or without underlining, bold, or italic, and even choose how you want it to be justified. For a short story collection you will probably need a minimum of three styles: for titles, headings, and subheadings you don't want to appear in the table of contents (e.g. the heading for the table of contents), for those you do (use a separate style for subheadings than the chapter headings), and for your main body of text. Your needs may vary depending on the book you're publishing, so set up as many styles as you need.
Once your styles are set up, use the styles option to format your text. This is done in a similar way to changing the font or text size, in that you select the text to be changed and then click on the style. However, this makes all the changes at once, which makes formatting much quicker than having to change, for example, the font size and formatting options separately. It will also come in handy later when setting up a table of contents.
Next time, setting up new chapters and stories.