How should I prepare my DOCX before formatting?

The formatter re-typesets your book with professional design, so your job is to give it clean structure, not styling:

• Mark each chapter title with a Heading style (Heading 1 in Word). That's how the formatter finds your chapters. See How does the formatter identify chapters?
• Use normal paragraphs for body text. Don't add blank lines between paragraphs to create spacing, and don't press Tab or space-bar to indent — the formatter handles indents and spacing.
• Keep inline emphasis. Italics and bold are preserved; use them normally.
• Mark scene breaks with a simple centered * * * or # on its own line — the formatter turns these into proper ornaments. If you have your own ornament artwork, place the image there instead, alone in its paragraph and with no caption. See Scene breaks and ornaments
• Leave your pictures in. They carry into both the PDF and the EPUB. Insert the best-quality version you have, and fill in each picture's description in Word's Edit Alt Text pane — that becomes the alt text in your ebook. See How are pictures in my manuscript handled?
• Remove Word's own page breaks, headers, footers, and page numbers. The formatter adds correct ones; leftovers cause odd gaps.

Don't worry about fonts, margins, or page size in Word — all of that gets replaced. See Why were my fonts, margins, and spacing removed?