For anyone looking for help with this more recently, the location of the setting has changed! Now it's under Word>Preferences>Edit>Editing Options, and then you can deselect the option "Select entire word when selecting text". For reference, I'm using Word 16.84 on macOS Monterey.
A screenshot of the Microsoft Word Preferences>Editing menu, that shows the location of the relevant preference. "Select entire word when selecting text" is the seventh option on the list. A screenshot of the Microsoft Word Preferences>Editing menu, that shows the location of the relevant preference. "Select entire word when selecting text" is the seventh option on the list.
