Hi Grant,
Each chapter should use the same heading levels for its headings as all the others, and each heading (except level 1) should be configured to restart numbering whenever the one above it changes. When you combine the documents, the headings for chapter 1 will start at 1, the headings for chapter 2 will start at 2, and so on.
You may also want to check out how to include chapter numbers in the page references:
http://word.mvps.org/FAQs/Numbering/ChapterNumber.htm
http://word.mvps.org/FAQs/Numbering/...rNumbering.htm
http://support.microsoft.com/kb/290953
http://support.microsoft.com/kb/313288