SAY THE WORD Rhinebeck to craft-fair aficionados and their eyes light up, their faces break into broad grins, and their fingers instinctively reach for their wallets.

That's because this small Hudson Valley village 105 miles north of New York City has been the site each summer of the Northeast Craft Fair, the nation's largest and most prestigious handicraft market. Friday through Sunday (June 24-26), artisans from 40 states, from Maine to California, will display and sell their work from huge Quonset huts and yellow-and-white striped tents on the sprawling fields of the Dutchess County Fairgrounds. (The fair is open only to the trade Tuesday and Wednesday, June 21-22, and closed Thursday.)

This is the 10th--and last--year the event will be held in Rhinebeck, a hamlet of pebbled streets and red brick storefronts set among rolling hills and winding rivers. Next year, it moves to larger quarters in Massachusetts.

This year's visitors will find an awesome variety of crafts. They will include wooden whistles in the shapes of dragons, rabbits and airplanes for $5 to hand-loomed garments for $100 and up, delicately carved dulcimers for $150 and $300 and handcrafted furniture, luggage, jewelry, and sculptures priced from $50 into the thousands.

Macy's shops at Rhinebeck, Bloomingdale's and Neiman-Marcus are there, as are summer galleries and boutiques from throughout the country. All are looking for quality handmade products for their Christmas line or the next tourist season. Last year's sales exceeded $5 million.

Among the more unusual products this year is the electronic jewelry made by Vernon Reed of Austin, Tex. His brooches, priced at $300 to $400, contain micro circuits that make lights go on and off on a screen in the center of each piece, giving the appearance of a video game.

Also quite special is the "wave" furniture made by Peter Adams of Penland, N.C. His free-form tables and benches, each carved out of a single piece of walnut or cherry, average $2,500 apiece.

The competition to exhibit at Rhinebeck is stiff. This year more than 2,600 artisans competed for 520 slots, sending slides of their work to an elected committee of their peers. The fair is sponsored by American Craft Enterprises (ACE) of New Paltz, N. Y., the marketing arm of the national American Crafts Council.

ACE also sponsors annual craft fairs in Dallas, San Francisco and Newport, R.I., as well as the February Winter Craft Market at the Baltimore Harbor.

But Rhinebeck is closest to the hearts of craft collectors looking for the very best in workmanship. The Northeast Craft Fair has outgrown tiny Rhinebeck (population 2,542), where finding accommodations for the craftspeople and their 50,000 visitors has become a nightmare, said Carol Sedestrom, ACE president.

"The collecting of crafts, both for investment and pleasure, has soared over the past 10 years as the craft movement as a whole has developed," she said. "We have to accommodate that growth."

The move, while no doubt practical, is a sad one for exhibitors and visitors alike, who look forward each June to driving through Dutchess County's farmlands on the way to the fairgrounds.

"There's a sentiment and romance surrounding Rhinebeck, and a lot of us like to stay in cabins in nearby parks," said Jayne Mackenzie, who makes wooden furniture in the shape of animals (priced from $300 to $500) from her workshop on M Street in Georgetown. This year will mark Mackenzie's fifth time as an exhibitor at Rhinebeck.

"I'll miss the woods, but none of us do shows just for the fun and scenery; 50 percent of my annual sales come out of Rhinebeck, so of course I'll go to Massachusetts if I get in," said Susan Bush, of Adams-Morgan. This will be her sixth year exhibiting canvas knapsacks and soft luggage (priced from $40 to $80) in brightly colored abstract designs.

"Still, it's sad the fair's moving," she said. "Rhinebeck's so historic, so traditional."

The village was founded in 1686 by five Dutchmen, who purchased 2,200 riverside acres from the Sepasco and Esopus Indians for six buffaloes, four blankets, five kettles, four guns, five axes, 10 cans of gun powder, eight shirts, six feet of polished beads, half a cask of rum and assorted household appliances, including one frying pan.

At one time the violet capital of the world, Rhinebeck boasts the oldest continuously operating inn in the United States, the Beekman Arms, built in 1766. The inn's adjacent Delamater House, designed in 1844 by Alexander Jackson Davis, is considered one of the finest examples in the country of Gothic cottage architecture. The village and its environs are sprinkled with grand estates dating from the 18th century, as well as lovely Dutch stone houses, colonial cottages and federal and Victorian homes owned by the local farmers.

Rhinebeck is also home to Cole Palen's Aerodrome, an excellent museum of early aviation, which from July through October provides air shows featuring antique planes.

Less than 25 miles away in Hyde Park, are the Vanderbilt and Roosevelt mansions, and the Culinary Institute of America, one of the foremost chef schools, which is open to the public for tours and dining.

But the craft fair is the area's main attraction in June. Its relationship with Rhinebeck has been a friendly one, ever since the village Chamber of Commerce agreed 10 years ago to permit the event to be held on the fairgrounds.

"We had to convince the town patriarchs that not all craftspeople were hippies, drop outs and drug addicts," said Carol Sedestrom. "They found out that the exhibitors not only were upstanding citizens, but also good for business. Their own surveys have shown that the town merchants pull in an average additional $3.5 million during the days the fair is in residence."

"I love the fair, and it's a shame they're leaving us," said John Tieder, outgoing president of the Rhinebeck Chamber of Commerce. "They bring money in and then they leave; we don't have to provide schools or expensive services for what we get. That's the best kind of income for a town."

The fair also has provided vital income and contacts to the craftspeople. Exhibiting at Rhinebeck can mean the difference between a flourishing enterprise with retail connections throughout the country and a long, hard winter, with advertising mailings, lesser craft fairs and word of mouth as the only means of attracting buyers.

"Last year I didn't get into Rhinebeck or the Baltimore Winter Market, and that cut my income in half," said Don Montano, a Silver Spring potter who quit his ceramics teaching job at Montgomery Junior College three years ago to devote full time to his art. "My wife teaches elementary school and that's really what pulled us through--that and the open house I have each year to sell my work."

Montano will be exhibiting his ceramic beer steins, ice buckets, mugs and plates--priced from $20 to $600.

"They're functional but they're also whimsical," he said. "Many of them have sort of chicken-like heads and some of them roll around on wheels just for fun."

Fun, of course, is what Rhinebeck and its fair are ultimately about. The prospect of finding so many high-quality crafts in one place and the opportunity to talk to the people who made them is reason enough to visit the fair, even if you don't buy a thing.