Hi Tod,
In Word, open the Tools > Options dialog and click the File Locations tab.
The location listed for the "Documents" line is the folder that Word will
show you the first time you use the File > Open or File > Save As dialogs.
You can use the dropdown in the dialog to navigate to other folders, but
that's the starting place. Usually that location is set to the My Documents
folder, but you can change it if you want to.
To work on a document that's on a CD, use the Windows Explorer (the file
manager program) to copy the document from the CD to the Documents location
on the hard drive. Then use Word to open the document and edit it.
Save often as you work, using File > Save or the Ctrl+S shortcut. This will
save to the Documents location on the hard drive. When you finish editing
and close the document, then you can copy the file from the hard drive back
to the CD. For that you can use your CD burning software (or if you have
Windows XP, you can use Explorer).