Terminal may be useful, but it does have its annoying quirks. For example, there are lots of standard key combinations for moving the cursor—Option-Left Arrow, for example, for moving to the left one word at a time; and Option-Right Arrow, for going the other way—that don’t work on the command line. But there is a way around the limitation.
Select Preferences > Settings and choose the Keyboard tab. Click on the plus-sign (+) button at the bottom. Select Cursor Left or Cursor Right from the Key drop-down menu and Option from the Modifier list. In the text-entry box, type a single backslash (\); doing so will enter a double backslash (\\). Press the left arrow key and then the forward Delete key to delete one of those backslashes. Now follow the single slash with 33b or 33f to get \033b (Option-Left Arrow) or \033f (Option-Right Arrow).
(The reason this works: by default, OS X’s bash shell uses Emacs keybindings; Escape-B and Escape-F are Emacs commands for word-left and word-right, respectively. And \033 is the code for the Escape key.)