Currently, in gedit you have the option to enable word wrapping - but only by window size.  I see the sense in this as a text viewer, but as a text -editor- it doesn't make a whole lot of sense.  If I open an 80-column file and resize the window, sure it wraps properly and I can read it without horizontal scrolling - great; we all hate horizontal scrolling.  However, I would argue that horizontal scrolling is a minor aesthetic issue; whereas wrapping by right-margin is a usability issue.  Users wanting to create standard-width documents, for example for sending via email (to ensure the document displays correctly on the recipient's 80x20 xterm), for inclusion in an IRC MOTD (which is not guaranteed to be wrapped by clients, and usually includes items which absolutely cannot be wrapped such as ASCII art), for use in a .signature file, for use in a .plan file, for use in a .motd file, all of which can (and often are) used in terminal-based applications.
This also highlights the fact that wrapping does not have the option to add linebreaks while it is wrapping.  It appears very much as though the word wrap feature has been created specifically as a viewer feature rather than an editor feature.  I know there are various issues with word-wrapping adding linebreaks (such as what happens if I edit line 22 in a 2000 line document, throwing every single other line out by about 5 characters) - but it's not impossible to implement this functionality.

Incidentally, I don't use gedit often - I tend to use vim; but I recently lose my escape key, which makes vim a -lot- harder to use.  So I've started using gedit for my text editing tasks.