To do this, first you have to open the Paragraph Formatting dialog box. This can be open using the small arrow button at the bottom right corner of the Paragraph area of the Home tab. (See the picture given below)
You will see the following dialog box appearing.
Indentation means the left and right limitations of the paragraph. If you indent 1 inch in left the paragraph begins 1 inch right of the left margin. You can indent only the first line of the paragraph by using the First Line Indent of the Special combo box of the Indentation section. If you give the first line indent 1 inch this begins the first line by 1 inch right of the left margin of the paragraph. Hanging indent is the indentation of all the lines except the first line. If you give hanging indent 1 inch this make the paragraph first line at the begin of the paragraph left margin and all other lines begin 1 inch right of the left margin of the paragraph.
In the Spacing section you can adjust the line spaces and the paragraph spaces. Before is the space before the paragraph and After is the space after the end of the paragraph. Line spacing means the space between two adjacent lines of the same paragraph.
To set all the above changes as defaults press the Default button at the bottom line of the dialog box. Then press Yes. This will save your settings for the paragraph to the default settings of Word.