Ankush khandelwal asked about compatibility issues between files created in different versions of Microsoft Office--specifically the big changes in file format that came with Office 2007.
With Office 2007, Microsoft introduced entirely new file formats for Word, Excel, and PowerPoint. Designated by an x at the end of the file extension (.docx instead of .doc, and so on), these were not backward compatible.
Initially, I wasn't happy with this change. I'm generally conservative about popular and established file formats--especially those supported by a great many software venders--and don't want them to be changed. And almost everyone in the office software business has been supporting .doc and .xls for years.
But Microsoft did an excellent job making the transition as easy as possible, and ensuring that both the old and the new formats would remain readable. (If anyone thinks I'm a shill for Microsoft, I suggest they read Why you shouldn't upgrade to Windows 8.)
You'll have no trouble loading an old .doc file into a modern version of Word. (I'm discussing Word specifically for convenience sake. Everything I say here also works for Excel and PowerPoint.) Just double-click the file and it will open.
You can also save a .doc file, so that people using older versions can read it. In the Save As dialog box, click the Save as pull-down menu and select Word 97-2003 Documents (*.doc).
Previous versions of Word were written without knowledge of the .docx format, so you can't expect them to read it without a little help. But the help is there. If you're using Office 2003 (or even Office 2002 or 2000), download and install the Microsoft Office Compatibility Pack for Word, Excel, and PowerPoint File Formats. You'll be able to open, edit, save, and create the newer x formats.
And yes, the newer formats have their advantages For one thing, the files are smaller, since the x formats have lossless compression built in. As a general rule, .docx files are about half the size of .doc files with the same content, and I've seen some less than a quarter of the size, making it easier to email or backup the files. According to Microsoft, they're also more secure and recoverable, although I haven't seen evidence of this with my own eyes.
They're also designed to be easily supported by other, non-Microsoft programs. In fact, they're made up of existing, open file formats. If you don't believe me, try this: Rename a .docx file, changing the extension to .zip. Then double-click it.
Yes, a .docx file is really a .zip archive (I told you it was compressed). Most of what you find inside are .xml files--another open standard. That experiment will also work on .xlsx and .pptx files.
After you're done experimenting, don't forget to change the extension back to .docx.