As has effectively been indicated, Windows 7 doesn't come with a fully-functioning word processor, such as Microsoft Word. (Microsoft would like you to pay them lots more money to buy it). However, as Fender62 has stated, it does have Wordpad (which is a very basic word processor), which can be found within 'Accessories'.
If you want a
proper word processor you definitely don't need to fork out for Microsoft Word. OpenOffice Writer (as recommended by SlackAlice) will do everything you want. (LibreOffice and Kingsoft Office are equally as good - all of these programs are free).
However (as SlackAlice has indicated) it's important to note that, by default, each of those programs will save documents in their own formats if you simply click 'Save', rather than 'Save As', meaning that users of Microsoft Word won't be able to open them. SlackAlice's method of using 'Save As' allows you to save in a format which is compatible with Microsoft Word but it's probably better to change the default setting to make OpenOffice Writer save in Microsoft Word format by default:
http://voices.yahoo.com/how-set-openoffice-writer-save-as-microsoft-11017880.html
All of the above free programmes are full office SUITES. (i.e. they come with programs equivalent to Microsoft Excel and Powerpoint as well as a word processor). If you ONLY want a word processor, Abiword is well worth a look:
http://www.abisource.com/