I've yet to encounter a better method of tracking changes than the one Word uses. Makes it trivially easy for me to take a document, make a bunch of changes, and then have the originator see exactly what I've done to it.
I've found a better method to be creating documents in plain text with some suitable formatting markup, and then apply a diff tool such as meld to see changes made. The way word does it, if I recall, involves sort of mashing the two versions together (or rather, having the change data saved with the document), with red font and strikethrough and so forth used to indicate changes, which is far harder to follow than what meld presents (the two documents side-by-side with coloured sections indicates changes, additions and deletions, joined with little lines between the documents to show locations, and a sensible scrolling mechanism to keep them coordinated).
I haven't used word for a few years, though, so if it's changed, disregard :)