can students edit a word document on the course and submit the saved edited document, or do they have to upload their own documents as files for marking?
They would need to submit their own file for marking, though you would be able to share an original template document on the course page, or possibly through Office365, but the student would then need to save their own copy for submission.
Students have to upload their own document. You can put somewhere a link to template, for example, in description of the assignment.
I think, depending on overall computer literacy skills of your group, you may consider providing details on what they should do: 1) download, 2) save giving a name to the document, 3) fill it in with data and save, 4) upload.