What is the difference between text submissions and file upload submissions

You can restrict the file type for assignment submissions. For example, if you would like your students to only upload word documents for grading and not any other file type such as a pdf or a ppt, you can specify the file extensions for MS Word document such as doc and docx in the Restrict Upload File Types field.

To allow students to type a response, you can select either the Text Entry option in the Online Entry Options selection box or type the file extension txt in the Restrict Upload File Types field.

Please note that:

Allowing file uploads (ppt; doc, and pdf etc.) for assignment submission and grading provides an inline file preview in the SpeedGrader for easy markup and adding feedback comments without downloading the document to your device.
Inline file preview in SpeedGrader is not available for assignments uploaded as an image, scan, screenshot etc.
You can use the Text Entry option to allow students to type in their submission. The text entry option can be specially useful for short essay type questions; open-ended quiz questions and survey responses. Note that text entry option does not support inline text preview for using the markup tools for providing feedback.