As I understand it Word (PowerPoint and Excel too) make a copy of the
original image in a format they can better handle.

The other thing I've noticed is that a lot of resolution is lost when using
the sizing handles to reduce an image, yet the file size of the finished
document does not alter. What you end up with is very big files with poor
resolution images.

I always resize my images with a graphics program before inserting them in
to a document. I find the images look sharper and the file size stays
reasonable too. You'll need to do a little experimentation to work out what
pixel size produces the right sized image in Word but I think it's worth the
effort. Try it and see what you think.

Regards