What version of word do you have? I just installed it off of office 2007. The insert option lets you insert jpgs etc. Is that what you're talking about?
I'm not sure which version of Word I have, but I can insert JPEGs with it.
What I'm talking about is creating
JPEGs. With Publisher I can create a document, with or without graphics, and turn it into a JPEG. So I can take a photo, insert it into Publisher, add text, and then turn it into a JPEG. I can then use that JPEG on the web, or insert it into another document.
One example of how I've used it: I've had situations where I need to email a customer a photo. If I just send the photo and a separate description, it could be confusing. With Publisher, I can add text, arrows, etc. and then convert it to a JPEG before emailing.