Oops! That was using Word 2019. In Word 2007 I get the same result you do with nothing selected. When I select all, I get more words, but still nowhere near the total in the document.

This may simply be a bug in Word 2007. Word 2007 was the worst release of Word since Word 2000 as far as bugs. I never used it for production work. Just checked in Word 2019 and I get 2801 words in your orginal document's readability statistics.