Then click on Start - Run, in the dialog that opens type in "C:\WindowsXP-KB835935-SP2-ENU.exe -x" minus the quotes.
It will ask you where to extract the files, put in C:\SP2
After this runs, all the files will be in the C:\SP2 directory, I think in a subfolder called i386. When Word asks for the SP2 files, point it to that directory.
As a side to this, you want to make sure your PC is updated to SP3 plus all of the other updates. After this is setup, head over to Microsoft and download and install Service Pack 3 for Windows XP. Then click on Start, in that menu you should see either Microsoft Updates, or Windows Update, something like that. Run it and follow all the prompts to install all the patches.