Nothing Is Unbelievable Anymore.
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In the box that appears, there's a word at top right hand corner that says tools with an arrow pointing down.Click this and from the list that appears, choose security options. Another box will appear, and then you will be able to set your password. Once you've set it and confirmed it, then click OK, and then save and then your password should be set.
Hope this helps.
(these instructions are for Word 2003 BTW)
NB. for the above answer about "making it private", this should be used with caution, as this does not password the actual file, and if someone does take the hard drive and place it in another machine or if you copy the files to CD/memory stick or attach them to an email, it will be possible to access the files without any passwords.
Similarly, if there are other "administrator" level users on the computer, they will be able to peer into the folder and open the files without a password.
So it's not as "private" as you may think. It's OK to keep out the casual snooper who is not an administrator on the machine or does not have physical access to the hard drive(s), but it's not recommended.
Again, it depends on how sensitive the data is you want to prevent access to, who has access to the machine itself and the technical knowledge of those users.