This has nothing much to do with Word: it's a computer issue in general.
It's a branch of digital typography known as 'hinting', and your
understanding of it is pretty well correct. The challenge is to get
consistent rendering on screen (as you say, at low resolution compared to
printing), for any combination of type size and screen zoom. Amongst other
effects, characters may need to be shifted left or right a little so that,
for example, all vertical strokes have the same weight.

Some fonts have had a lot more hinting work done on them than others. If you
experiment with different fonts at different sizes, you'll see that some of
them display reasonably well over quite a range of sizes, while others look
really terrible at some sizes.