It appears to be the "Fit Text" Tool.

To add it to your custom toolbar in Word 2007, click on the arrow at the end of your Custom Toolbar, then select More Commands.


Change the Choose commands from value to All Commands:


The left window should display all possible commands available in Word to add to your Custom Toolbar.

Scroll down the left window until you find the Fit Text command:


Click on the Add button between the columns

to add that command to your Custom Toolbar.

Click OK to finalize your change.