Formatting is to identify what a Header is vs. a Paragraph, etc.

Style assigns an appearance to a specific format such as font, font size, line spacing, etc.

In my experience (base on the definitions in my answer) if it's a raw document that I'm creating as I go, I don't worry about formatting it until I'm happy with the content.

I've seen many hours wasted on formatting when the document has little to no content. Formatting is a distraction and time waster at that stage of development. (This is also true for web pages. First create the information, then decide where it goes and how it looks. The perfect website will read like a well written paper so that text readers for the sight impaired can navigate and comprehend your content. Style Sheets (CSS) govern the order and appearance for your sighted readers only.)

Once the content exists then I can add (assign) titles, subtitles, sections, subsections headers, sub headers, paragraphs, bullets, notations and bibliography. I assign formats to each section. Remember that the default format for a raw document is "paragraph" so it is not necessary to assign the paragraph formatting to a paragraph.

Then I generate a TOC (Table of Contents) to make sure I didn't miss anything that I want to show up in my TOC.

Lastly I research an appropriate Style for my document using modern guidelines. Many of the default Styles that come with your Word Processor are sufficient. Special Styles can be downloaded online. Typically these Styles are found on the website the software is discussed or supported by the provider.

Styles take into account each type of formatting so that if you assigned the correct format to the correct section the end result is a professional and accurately represented document.

If when you are done and you review the document (prior to submission) you see that something doesn't look right, consider the possibility that you assigned an incorrect format to that section or choose another Style.

NOTE: Always proofread your document. Getting a colleague to give it a final proof is valuable since a fresh look and fresh eyes will catch things you missed due to staring at it non-stop for days or hours.

In conclusion, it is faster to format and style a document AFTER the content is created than formatting and applying styles as you go.

It is worth noting that some word processors have a difficult time tracking changes to style and format and the only way to fix a "broken" document is to remove all formatting and styles and start over. (MS Word is guilty of that phenomenon in particular.)

I found it was best to wait until the end and save a "plain text" version of the document separately before formatting and styling (unformatted text is a smaller file too, perfect for archiving).

File names should represent your document for easy locating later. Decide what makes your document unique. Is it the subject or the date it was written? Is it a rebuttal or an original concept? Will it be stored in a document folder specifically for that topic or will it get mixed in with other "June 2009" files and get lost?

If I'm writing a proposal for an iPhone application I might call it:

iPhone_app_ORIG.docx and iPhone_app_0001.docx (the first being my unformatted source, the second being my first draft with formatting and styles).

Remember when creating an original document NOT to make changes to the content of the copies, only the original. Your "best practice" workflow experiences may vary. (I've seen people take the final document and strip all formatting to create an archival source.)