Microsoft Word supports many file formats which can be used as a Data Source for a mail merge. This article covers specifications and frequently asked questions on the most commonly used Data Sources, along with how to set up a Data Source in Word.
Mail merge is for simplifying repetitive documents and tasks. Mail merge can be used for creating many documents at once that contain identical formatting, layout, text, graphics, etc., and where only certain portions of each document varies. Mail merge is also used for generating mailing labels, envelopes, address lists, personalised training handouts, etc. As well as hard copy mailshots, it can be used to generate multiple emails and electronic faxes. And it can even be used to create a 'friendly' front-end to spreadsheet or database information.
Word's sorting capability is fairly rudimentary, especially for those migrating to it from WordPerfect (though it's surprising how many people don't realize Word can sort paragraphs, not just tables – or maybe not so surprising, given where the item is in the menus! The ability to sort on word 2 in field 3 would certainly be very useful (in Excel as well). But there are various things you can do in the meantime.
Purists might argue that the power it gives ordinary users isn't necessary because they should use Access queries for this sort of thing and link the merge to the query. But in my experience, many people who are very comfortable working with Word and Excel find Access (or any full-fledged database application) very difficult to work with, and can get the job done far more quickly and easily using a combination of Word and Excel. At the end of the day, getting the job done is what matters. The vast majority of the world's databases (in terms of number of databases, rather than in terms of amount of data) are stored in Excel spreadsheets.