We’ve recently looked at how Word & PowerPoint templates created in MS Office on the desktop behave in Office365. We found that templates stored in an Office365 folder (i.e., in SharePoint or OneDrive) can be previewed online but not edited or used as the basis of new documents. At least, not in the same way as it can in its desktop application.
The online version of Word (appropriately called ‘Word Online‘) which is accessed via a browser can open and edit an online Word document (.docx file) but not a template (.dotx or .dotm). Word Online can work around this by prompting the user to open the template in their desktop version of Word.
Functionally, Word Online is a much scaled-back version of the desktop application. Some document features potentially inherited from a template, such as Building Blocks and Ribbon customisations, will not appear in the online version. And as it can’t open a template file, it can’t fulfill a template’s primary purpose of spawning new documents.
However, a special type of folder in SharePoint called a Document Library can automatically generate new documents based on a Word or PowerPoint template. This is something that a SharePoint administrator can enable and configure, but standard MS Office templates can be used for this purpose without any special modification. More details on that here: Set a file template for a document or form library
Office365 is a great way to store, share and collaborate on documents. Just remember there are trade-offs in functionality when it comes to MS Office templates.