You can use Kindle Create to make an e-book, but not as an editing tool. The way KDP has designed this beta software, you pour a fully edited document into KC, use its formatting features, and get an e-book. Don't do any editing because you will not be able to apply that directly to your source document, and you always have to have a clean document to turn to for revisions or if you want to offer it in another format or on another platform. If you're the kind of person who is always editing your work, you really need to concentrate on learning how to master Word/Styles, rather than a software (essentially a "crutch") that requires you to stop editing and start formatting. Good luck.
As Ralph says, it's far better to learn how to use heading and paragraph styles in Word than to depend on Kindle Create -- never mind the fact that KC itself assumes you have used styles to format your Word doc.
Best of all, of course, is to get down and dirty with the html. All ebooks are html files, all e-readers are special purpose web browsers, and even Word itself is html behind the pretty face.
(Don't trust KDP to publish a print edition. Don't trust CreateSpace to publish an ebook. Each does one thing well and the other thing poorly.)
Thanks for the feedback! -- I had also emailed Amazon Support and just got this response.
"Please note the formatting changes you have made using Kindle Create are not saved in book.docx but are saved in .KCB file format.
book.docx is created by the tool for source file reference."
As I had found out, book.docx is nothing more than a copy of the original source file that was imported into Kindle Create. Seems rather useless to generate this file.