Update: I missed the bit about "overlapping matches....

Something like this?

 $s = 'I have somwhat large articles of text (returned from a search),
+ what I\'d like to do is capture the word and X number of words befor
+e and after it while tagging the matching word in the captured text.'
+;;

print $s =~ m[ ( (?: \S+ \s+ ){3} X (?: \s+ \S+ ){3} ) ]x;;

the word and X number of words
[download]

Update2: Here's one that does overlapping and tagging:

#! perl -slw
use strict;

my $word = $ARGV[0] or die "No search term";

( my $text = do{ local $/; <DATA> } ) =~ tr[\n][]d;

$text =~ s[
    ( (?: \S+ \s+ ){1,3} )
    ( $word ) [[:punct:]]*
    (?= ( (?: \s+ \S+ ){1,3} ) )
][
    print "$1<$2>$3"
]gex;

__END__
Regular expressions have always been a weak spot for me, and I've got 
+a
question that's got me stumped. Here's the problem I'm trying to solve
+.
I have somwhat large articles of text (returned from a search), what I
+'d
like to do is capture the word and X number of words before and after 
+it
while tagging the matching word in the captured text. My inital though
+t
was to try something like this. The problem I have is that if there is
more than one term and they overlap, the nth term will not be annotate
+d.
So my next thought is lookahead/lookbehind, but they don't capture.
Is there a way to do this with a single regex? Is a regex even the bes
+t
way to do this? Thanks, -Lee
[download]

Some results

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search), what I'dlike <to> do is capture
My inital thoughtwas <to> try something like
there a way <to> do this with
even the bestway <to> do this? Thanks,
[download]