Two types of files are accepted for stories submitted as attachments in the submission wizard:
Plain Text Files: files ending with .txt or .asc. Those are plain text with no formatting.
HTML Files: files ending with .htm or .html. Those are basically web pages. They can be created with most word processors. Use them only if your story's text needs and contains bold or italic text.
If you use MS Word to write your stories, you can save your story as HTML by selecting 'Save as...' from the file menu and in the 'save as' dialog box, select 'Web Page (filtered)' or 'HTML (filtered)' from the file type drop-menu. If you're using MS Office 2000, you may not have the '(filtered)' option. In that case you need to download a filter from Microsoft to create compact html files. Here is a visual guide for the steps required.
Alternatively, the site's submission wizard gives you the option to paste your story's text directly into the form instead of attaching a file. Use that option if your story's text is fairly short (under 10,000 words) and if you don't need formatting.
The site's Text Formatting Guide provides more in-depth information about your options.