The underlying OS could already do faxes (by treating them as a special case of printers and popping open an OS-controlled dialog to accept phone number &c). But Word bypassing all of that with its own fax drivers and protocols meant it could provide a full UX for the end-to-end of faxing (including, probably most importantly, scripting the fax send so you could merge from a phone number database)... At the added complexity of replicating an entire feature the OS already offered a slightly different way.

Features interact combinatorially, which introduces complexity.

Faxing isn't a great example, since from the perspective of most other features, it's probably just a special case of printing, but you can imagine it made it harder to build a web-based version of Word (what number are you faxing from? How does the computer in the MS data center contact or emulate it?)

Heh, there is some saying along the lines of "Any one customer only uses 10% of the features your software provides, the problem is each customer users a different 10%"

It's almost always a better bet to add more complexity to your product to capture more market than to make it as simple as possible.