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"Source format" is the format of the document used as the source for the conversion. The calibre error message is a bit terse and means "there is no acceptable source format for this book".
Calibre does not accept .doc and .docx format files as the source for conversion. Simply open the .doc in MS Word or WordPad and resave as an RTF. If you are using MS Word you can also save as "HTML Filtered". Add the HTML or RTF file to calibre and you'll find that it can then convert it.
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