Type-and-search element is ideally used to type and search values from the dropdown and select them. The default behaviour of the Type-and-search element is that it becomes valid only when we select any value from the dropdown (when required validation is added on the element). To allow it as a text field this checkbox needs to be selected.
Allow Text Field property can be used in scenarios where the user wants to save a new value which is not present in the dropdown. In this case the Type-and-search field will act as an Input field along with type and search functionality.