It looks like Word was having trouble identifying the subject of the sentence.
These sentences came up as gramatically correct in my version of Word:
- The only light in his sparse dwelling was from an assortment of candles.
- The only light in his sparse dwelling were from an assortment of candles.
- The only light was from an assortment of candles.
- The only light were from an assortment of candles.
- The light in his sparse dwelling was from an assortment of candles.
- The light in his sparse dwelling were from an assortment of candles.
Adding "that was" after light produces ("The only light that was...") the correct grammatical response. Interestingly, removing "only" and "in his sparse dwelling" also produces the correct grammatical response. As does replacing the word 'light' with 'brightness' in the original sentence.
I'm not surprised Word has a problem with the word "light" - it's an adjective, a verb, a mass noun and a count noun - and each of those parts of speech works differently in sentences.
Computers have real problems identifying whether a sentence is grammatical or not, because no one's figured out a way to get a computer to parse language correctly. It's a similar reason why machine translation results are dubious at best.
I turn the grammar checker off when I'm writing.