Text wrap not working as I need when inserting an image into a paragraph

If you have object anchors displayed, you'll see what the issue is. Note that the picture is anchored to the paragraph below it. It must stay on the same page as the paragraph to which it is anchored. If you drag the anchor to the next paragraph (on the next page), you'll see that the text wraps the way you want it to.

When you drag the anchor, the picture stays put, but its position is defined relative to the paragraph it's anchored to. If you add more text on the preceding page, the picture will move down with that paragraph. To ensure that it stays at the top of the page, select the picture and select the contextual Picture Tools | Format tab. In the Arrange group, click on Position and choose More Layout Options...

In the Layout | Position dialog, set the position as Left relative to Column and Top relative to Margin. That will ensure that the picture will stay at the top of the page as text moves around it. FWIW, you can also set the wrapping to Square rather than Top and Bottom. Since the picture is full margin width, this will amount to the same thing.

An unrelated bit of advice: it is conventional in book typography to use a first-line indent on paragraphs with no space between. I see you're using Normal style for all your text. I would strongly advise using styles appropriately (this makes it much easier to format the book. For the bulk of the body text, you could use Body Text First Indent (modified as necessary). I see you've used Heading 1 for your chapter titles, but you haven't modified it to add the desired Spacing Above and Below; doing so would eliminate the need for empty paragraphs above and below. Also, a subtitle such as "The 1930s" on page 71 could use another heading style, and it should be centered using centered paragraph formatting rather than roughly centered with spaces.

I'm glad you enjoyed the stencils. I'm now wondering about new stencils saying "OSS" on the backs of traffic signs (in an entirely different location).

As Stefan says, because Word is word processing software rather than page layout software, it is not possible to have any kind of wrapped object alone on a page because any wrapped graphic has to be anchored to a text paragraph, and text will not flow around that inline paragraph.

Here's what you have to do to give the appearance of wrapping text around a full-page object:

1. Wait until editing is complete and you know the text will not change or reflow.
2. At the bottom of the page that will precede the graphic, you will insert a page break. If you can break the page at the end of a paragraph, so much the better. If not, break the paragraph first with a line break (so that the last line on the page is justified) and then a paragraph break followed by the page break. You'll need to select the paragraph break and format it as 1 point or (if that doesn't suffice) as Hidden so that it doesn't wrap to the next page.
3. On the next page, insert your full-page object, followed (just for good measure, though technically it shouldn't be necessary) by a page break.
4. On the page after the graphic, your text will continue. If you had to break a paragraph in the middle, the second half of the paragraph will now have an unwanted first-line indent, so apply Body Text (not indented) in place of Body Text First Indent to just that paragraph.

In other words, you are really splitting the text drastically, but with these techniques, it will appear to flow continuously from the page before the graphic to the one after it. Of course, if you can keep the graphics to less than a page, it's much easier to deal with them.

Good luck on the book. It looks like it's going to be quite interesting. Looking at the TOC, I'm thinking you might want to look at http://WordFAQs.mvps.org/TOCTips.htm#UnnumberedHeadings.