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I'm interested in saving space by scaling all characters in a passage of text to, say 95% of their normal horizontal character widths. In Microsoft Word this is done with the Scale field under the Character Spacing tab in the Font formatting dialogue (see the figure).

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Is it possible to accomplish the same thing in LaTeX?

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Probably yes, I'd check the microtype package (and maybe virtual fonts would be the way to go). But I'd strongly discourage this (on the grounds that this may strongly hinder legibility and aesthetics); there are other ways to save space, ranging from using the savetrees package to rewriting your text. Summing up: this may be a good idea only in case of texts noone will read anyway, so why bother;)? –  mbork Mar 23 '12 at 6:35
@mbork I don't know of an easy way to do this with microtype. I agree that horizontal scaling should be used only under special circumstances, but the question has merit. –  lockstep May 6 '12 at 8:40
@lockstep: 100% agreed (I even upvoted the question). My suggestion of microtype was only a guess, I don't know that package very well. –  mbork May 6 '12 at 22:38
some suggestions along this line have been made in responses to this question: making-text-narrow –  barbara beeton Sep 2 '12 at 20:03

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No, pdftex has no feature like that and it's better it hasn't, speaking from a "good typography" point of view.

It has a feature called \pdffontextend that is exploited by microtype, but it can come into action only if a paragraph can't be set with the normal character widths.

One might think to provide virtual "condensed" fonts, but it would be very hard work to build them for all the fonts needed in a document. And legibility would be largely hindered by such a practice.

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