I haven't used the Language Packs, so I can't tell you much about how they work. The
Microsoft Office 2003 Language Interface Pack listed in the previous link allows you to use Office features in a different language. When you change your language preferences via that, you get a translated user interface.
As for features introduced since Word 2003, that Word 2003 and earlier don't support, these include:
• Files in the docx & docm formats (though a compatibility pack was produced to overcome that - see:
Microsoft Office Compatibility Pack for Word, Excel, and PowerPoint File Formats - Free download and software reviews - CNET Download.com
• Content Controls (a replacement for formfields that doesn't require 'filling in forms' protection to work);
• Citation & Bibliography referencing; and
• the ability to restrict which Styles can be used in a document.
Content Controls and citation & bibliography references get converted to text when a docx/docm file is opened in Office 2003.
Other than support for document versions, I'm not aware of any functionality that has been lost with Office 2007 & later.