Final answer:
The words 'Toy Story' should be capitalized in the sentence as it is the title of the movie, following the MLA style of capitalization for titles and subtitles. Titles should also be italicized or underlined in sentences.
Step-by-step explanation:
The word that needs to be capitalized in the sentence 'The local elementary school is organizing a screening of the movie toy story as fund-raiser' is 'Toy Story', which is the title of the movie.
In English, the titles of books, movies, and other works of art are always capitalized. According to MLA (Modern Language Association) style, the first and last words in a title, as well as other important words, should be capitalized. This does not include articles, coordinating conjunctions, or prepositions, unless they are the first or last words in the title.
In the context of capitalizing titles, it is important to note that titles should also be italicized or underlined when written in sentences to distinguish them from the rest of the text. Thus, in the provided sentence, 'Toy Story' should be both capitalized and italicized or underlined.