[eigenvalue]

Actually, most big law firms do not use the built in track changes function in Word, they use more specialized (and in my experience, better performing) software that take a "before" and "after" Word file and then generate a nice "redlined" version showing insertions, deletions, moves, etc. in different colors. Examples include Workshare DeltaView and Litera Change Pro.

[eru]

Word itself allows you to compare multiple files nowadays. (Though I don't know if it does three-way merges, yet.)