We are using the Jive Connects for Microsoft Office for this and it works very well for us. Among other features, it has automatic version control and multiple people can be editing the document at the same time. (there are some things to consider when you have multiple editors). I use the Connector about every day.
If you are NOT using the Connector, I believe you are correct....you need to make your changes locally and then re-upload the document to Jive. If multiple people download and make changes, there is no "merge changes" functionality without the Connector....each upload would be saved as its own version.