People look at you like your a damn wizard when you diff two texts to find the differences. I'm sure there are diff tools for Word as well, but almost no one use them, because they aren't aware that such a tool could exist.

The average person run around with a smart phone in their pocket, a marvel of engineering and yet they still don't know how to use their computer to do trivial tasks.

Word has built in diff. Review -> Compare.

It's kind of slow though in my experience. Diffing plain text is amazing. I recently used it to diff a research paper I was peer reviewing that the TeX source was provided for. I felt like a wizard.

If anything, the "track changes" feature in Word is actually nicer than diffing by hand (and this is coming from someone who positively hates Word!).

Does it track changes in one document (when enabled), or can you give it two documents and let it highlight changes?

(A fairly common occurrence when many people's distributed version control system consists of emailing around "thesis_v0.9.doc", "thesis_v1.0.doc", "thesis_final.doc", "thesis_final_v2.doc", etc. See also: http://phdcomics.com/comics/archive.php?comicid=1531 )

That is an excellent point. I recently switched from Google Docs to Org files with Unison and ediff for syncing. Having everything work offline and on, over multiple machines, and being able to review and merge changes really makes things much more convenient. I now have multiple local and remote backups and no longer have to worry about losing my Google account. Another common pattern is to diff files that come in over email, or to diff when someone takes my code changes and modifies them by hand/rebases them.

At this point I think that plain text files in a distributed version control system that can also import/export patches for emailing (like darcs and git) is clearly superior to cloud-based document storage. The promises of the latter have just not panned out - what we got instead is vendor lock-in and the Damocles sword of account lock-out/deletion/hacking. In many ways (UI responsiveness, control of data and privacy, service discontinuation due to vendor shutting down product/acquisition/bankruptcy, etc), the cloud apps are a big step backward from PC applications.