There are three ways that you can add your text to the image:

Vector creates the text as a Vector layer. This means that you can stretch and resize the layer as often as you like without losing quality. It also means you can later click on the layer with the Text tool selected, and re-edit the text (changing the words, font, size etc). Usually you'll want to select Vector.

Selection creates the text in the form of a selection marquee. You can then fill this selection, use it to cut something out, etc. Note that the actual text is not placed on the image; only a selection is created.

Floating creates the text as a floating selection. This places the actual text as a raster (non-vector) graphic on your image, but it "floats" above your image, a bit like a layer, so you can move it around. If you want, you can choose Selections > Promote to Layer (Shift+Ctrl+P) to turn this floating graphic into a proper layer.