With Word 2011, you have three ways of doing this:
(1) from the Word "Insert" menu, select Photo ... and then select Photo Browser. If things work properly here, you'll see all your iPhoto photos displayed and you can scroll through them and select the one you want.
(2) Perhaps easier, but not as elegant, from within iPhoto you can export the photo to a convenient folder as a .jpg file. Then, from the Word "Insert" menu, select Photo ... and then select Picture From File and navigate to that folder with your exported .jpg file and choose it.
(3) Maybe even easier, from within iPhoto, select the photo, choose COPY, then go to Word and PASTE the copied image directly into the Word document.
Actually, the number 3 suggestion does work, it is just not as obvious as the usual copy/paste. First of all, in order to copy the picture in Iphoto, you must be viewing the picture among all the other pictures within that album. If you double click the photo so that it enlarges for editing, you cannot copy it. Anyway, once you have selected the album the picture is in, click the picture once so that it is outlined. Next, go up to the Edit menue and select copy, or press command + c. Then, in word, select paste in the edit menue. This is the easiest way to transfer pictures.