It operates both ways. If you type in a name and press enter, it will attempt to find a matching place and set the pin location, then copy back the text description from that place. If you DON’T press enter, then when you save the observation it records the text as entered. See my description of how this is useful here:
https://forum.inaturalist.org/t/difference-between-map-and-written-location/5726/5