Adding cross references might not seem useful until you need alteration to a huge document. Even though it is a small document adding cross references will reduce future redoing.
Lets think that you are righting a document and it has about 10 to 15 figures. So you have added the 'captions' using word's captions. Then you have several places where you have added references to those images and those are not cross referenced. Now you need to add a new chapter in between previous ones. So then you'll have to go to the chapters which are below to the added new chapter and change figure reference's chapter number. Or if you have added figures in between the previous figures of the same chapter then you will have to go changing all the figure numbers. Add another time... Do the changes again...Lot of redoing will be there.
So you can avoid this by cross referencing. This can not only done to the figures, but also to the tables,equations etc.
1. First click on the place where you need to add cross referencing. Go to 'References' ribbon, 'Captions' panel and click on cross-reference.
2. Cross References window will pop up.
3.You have multiple choices. Can add references to any element which can be selected from the 'Reference type' drop down.
4.Lets add a cross reference to a figure. Then select the entity that you need to insert reference to from the 'Insert reference to drop down'.
5.Then Select your figure which needs a reference. This can be selected from the 'For which caption' field box.
6.Click on 'Insert' and you're done. The reference will appear at the selected place.