SQL Server is not good at this kind of things, but here you are:
WITH Src AS
(
SELECT * FROM (VALUES
('CAT', 'ACT'),
('CAR', 'RAC'),
('BUZ', 'BUS'),
('FUZZY', 'MUZZY'),
('PACK', 'PACKS'),
('AA', 'AA'),
('ABCDEFG', 'GFEDCBA')) T(W1, W2)
), Numbered AS
(
SELECT *, ROW_NUMBER() OVER (ORDER BY (SELECT 1)) Num
FROM Src
), Splitted AS
(
SELECT Num, W1 Word1, W2 Word2, LEFT(W1, 1) L1, LEFT(W2, 1) L2, SUBSTRING(W1, 2, LEN(W1)) W1, SUBSTRING(W2, 2, LEN(W2)) W2
FROM Numbered
UNION ALL
SELECT Num, Word1, Word2, LEFT(W1, 1) L1, LEFT(W2, 1) L2, SUBSTRING(W1, 2, LEN(W1)) W1, SUBSTRING(W2, 2, LEN(W2)) W2
FROM Splitted
WHERE LEN(W1)>0 AND LEN(W2)>0
), SplitOrdered AS
(
SELECT *,
ROW_NUMBER() OVER (PARTITION BY Num ORDER BY L1) LNum1,
ROW_NUMBER() OVER (PARTITION BY Num ORDER BY L2) LNum2
FROM Splitted
)
SELECT S1.Num, S1.Word1, S1.Word2, CASE WHEN COUNT(*)=LEN(S1.Word1) AND COUNT(*)=LEN(S1.Word2) THEN 1 ELSE 0 END Test
FROM SplitOrdered S1
JOIN SplitOrdered S2 ON S1.L1=S2.L2 AND S1.Num=S2.Num AND S1.LNum1=S2.LNum2
GROUP BY S1.Num, S1.Word1, S1.Word2
And results:
1 CAT ACT 1
2 CAR RAC 1
3 BUZ BUS 0
4 FUZZY MUZZY 0
5 PACK PACKS 0
6 AA AA 1
7 ABCDEFG GFEDCBA 1