The styles pane shows you a list of the styles that are already used in your document. Other styles you see there are part of the default template, and may not actually appear in your document. These styles are set up for you automatically by Word, and they appear in any new document you create. Default template styles include the "Normal" style, bullets, numbering, and "Heading 1," "Heading 2", etc.
Let's say that you want the title of the document, "Single Sourcing: Its Implications for Education and Business" to be a level-three heading (Heading 3), one of Word's default styles.
Begin by selecting the text...
...and then click on "Heading 3" in the styles pane...
The title should now look like this:
Now let's assume that you've changed your mind, and you want the title to be a level 1 heading. Repeat the above procedure, but select the style "Heading 1" instead. Notice that it overrides the previous style entirely.
Go through the entire document and apply the "Heading 3" style to the rest of the headings in the document:
Hint: you can apply the default heading styles quickly by putting the cursor in the paragraph you want to be a heading, and then using the following shortcut key combinations: