This opens up a new form that allows you to design a custom table of contents.
One thing you can adjust is whether you have dots, dashes, a line, or nothing at all connecting the section heading and the page number by adjusting the tab leader. You can even adjust whether page numbers are displayed and how those numbers are aligned.
On the show levels option, you can set which outline levels are displayed in your table of contents. The default is 3, which means that all text in your document that is set to an outline level of 1, 2, or 3 will show up in your table of contents. Thus, if you only wanted to show level 1 headings, you would adjust the "show levels" number to 1.
If you click on the Modify button, a style window will open:
From in here, you can adjust the style of how the text in each outline level will appear in your table of contents. In many of the default options, Word will copy the style used in your document. So, if your level 1 headings are bold, italic, and underlined, then they will appear that way in the table of contents. Personally, I don't like that look.
I will usually set the styles in this box to all be the same font size and style by clicking on the heading I want to adjust (TOC 1 for all level 1 headings, etc.) and clicking on the modify button. This opens the familiar font and paragraph option windows where you can set, in detail, all of the font and paragraph styles you could possibly want. I usually just indent each subsequent level in .25".
Once you have your settings all adjusted to your liking, you can insert your customized table of contents. Don't be a slave to the pre-defined tables of content; make them your own.