Word's help describes the "Hyphens with dash" option at
Tools:AutoCorrect:AutoFormat-As-You-Type as follows: "When you type a space
and one or two hyphens between text, Microsoft Word automatically inserts an
en dash ( - ). If you type two hyphens and do not include a space before the
hyphens, then an em dash ( - ) is created."

This is meant literally. You have to TYPE something after the hyphens. If
you paste, it won't work. Even if you type, the hyphens only get transformed
when something like a space, period, or Enter is typed. You can see this by
typing:

test--test

Of course this introduces the possibility of untransformed hyphens unless
you limit yourself to editing in only the ways the designers have imagined.

What if after the second "test" above you move the cursor elsewhere? What if
the second "test", followed by a period, was already there before you
entered the "test--" preceding it?

These problems make the feature unreliable for getting dashes as intended.