Use the Horizontal
Type and Vertical Type tools to create and edit text. The new text
you type is entered in a new text layer. You can create single-line
text or paragraph text. Each line of single line text you enter
is independent—the length of a line grows or shrinks as you edit
it, but it doesn’t wrap to the next line. To create a new line of
text, press Enter. Paragraph text wraps within the paragraph boundaries
you specify.

Single-line text (top of image) and paragraph text (bottom
of image).

You can use the type mask tools (Right-click
the Type tool) to create a selection in the shape of text. You can
then create different effects and cutouts with the text.
Clicking in an image with a type tool puts the tool in edit mode
so you can enter and edit text. You must commit changes to the type
before you can perform other operations, like selecting menu commands.
The Type tool is in edit mode when you see the Commit button

and
Cancel button

in
the options bar.
Note: When you add text to an image that’s in indexed
color mode, Photoshop Elements does not create a
new text layer. The text you type appears as masked text.