When the cursor is inside a word and formatting (bold, superscript, etc.) is applied, the entire word is changed. How can I turn this off, so that when the cursor is inside a word and formatting is turned on, only new characters entered at that point have the formatting?
I don’t know of any trick to disable this feature. It is a real annoyance when reviewing text.
You have two options, but this requires leaving the keyboard for the mouse then back.
when editing text (mostly no typing), select the sequence to emphasise then apply stylistic effects (character style, recommended, or direct formatiing with toolbar button or keyboard shortcut)
when correcting text, type first a space (which the effect of artificially creating a new word break and start), strike the keyboard shortcut, type a character, move back, erase space, move forward and continue typing (a lot of fuss for a simple requirement!)
Since I am a strong advocate for styles – paragraph and character notably --, I warn you against any kind of direct formatting which will complicate your life afterwards. Always prefer a neat, clean formatting based on styles, not on toolbar buttons (or their menu/shortcut equivalences).