The Microsoft Accessibility Checker will generate an error if images and objects are not formatted 'in line'. This means that the object is on the same layer as the text, and is not floating above or below it, and the text does not wrap around it.
The Layout Options menu is located by selecting the button in the top right corner of the object.
Note: If your document will be converted to pdf format, it is not important that objects be formatted 'in line'.