dictation function on my Macbook Air

You must click on the application to make it front-most before your dictation will appear in it. It also has to be an application that is compatible with dictation. LibreOffice Writer (6.2.4), for example, is extremely slow to respond to dictated text and I would not recommend it for use with dictation.

Yes, by frontmost, I mean that you have clicked in the Word document for focus, and what you speak ought to be deposited into Word. Nothing to my knowledge that you need to set in Word, or any other application that can receive dictation results.

Presumeably, you are using Enhanced Dictation so that you are not vulnerable to a slow Internet round-trip to Apple's Text-to-Speech servers. If your Word document is situated on Microsoft's OneDrive cloud, that may not pass dictation results to the Word document. Uncertain of that though.