If there is only enough room for one or the other, the arrowheads win and the text is placed outside. If there isn't enough room for the arrowheads, then both the text and arrowheads are placed outside. Note that the help file has switched the information for Text and Arrows and, hence, is incorrect. Both text and arrows. When space is limited, both the text and arrows will be placed outside the extension lines.
Text is placed between the extension lines even if there's no way it's going to fit.
The text will be centered and written right over the extension lines. After selecting one of the fit options, you can also select the next option in conjunction with it. Suppress arrows if they don't fit inside the extension lines. If the arrows don't fit within the extension lines, the arrows will be suppressed. This section deals with the placement of dimension text when it is moved from the default position.