First, choose the Desktop Printing (Book Fold) option under the Printing tab during the initial book setup.
When the book is done being formatted and it is time to print you will need to use your printer's book fold, booklet or manual duplex printing option. This option is typically found under the printer Preferences area when you go to print the document from within Word. Each printer's settings will be different so I am unable to give exact instructions.
When you select your printer's bookfold settings correctly it should print out the front sides of the book, two pages on a sheet in landscape view, then ask you to remove all of the pages, flip them over, reinsert into the paper tray then prints out the backside pages. When done you would fold the sheets in half for your booklet.