Why is AutoCorrect capitalizing the first word in each line, not sentence,
but each new line?

Kelly,

The answer is probably due to how you are starting new lines. If you
are starting a new line by pressing the enter key then what you are
really doing is telling Word to start a new paragraph. Since
paragraphs start with sentences and sentences start with capitalized
words, AutoCorrect is doing its job.

If you are simply typing a stream of text then let Word automatically
wrap to the new line. If you need to force a line break (i.e., say for
a poem) use Shift+Enter