I can do something similar with Microsoft Word as well.

But I also risk losing something in the process. Did I emphasize things with bold or italic in the editor? That will be lost when saving to plain text. In that sense Word and TextEdit are both correctly called rich text editors which just happen to have the ability to save to plain text.

Notepad, however, doesn't support the formatting... so you can't create something that you can't save. That's the difference.