Internal estimates are a political tool, not a technical, financial or scientific one: First, decide if you want to do it or not. Then do the estimate, high if you don't want to do it, low if you do want to do it.
Any kind of reality doesn't factor into it.
In the Word example, somebody really thought this project was worthwhile for some reason, so they gave a very low estimate to get things started. As soon as money has been spent on a project, it isn't likely to be cancelled as easily, so you are safe to continue even if you exceed your original estimate. In the worst case, you need a few excuses.
External estimates, i.e. estimates you use for writing up a contract with an external customer, are different. Those actually do matter, depending on the wording of the contract. But a smart contractor will try to get the contract into a shape such that the above for the internal estimate does apply.
There is a story that Microsoft Word was a staggering failure in terms of actual time and cost to implement versus its estimates.
It then went on to be among the most lucrative ($ billions) pieces of software ever created.
Was Microsoft Word a failure?