I am trying to set up a spreadsheet so that in particular cells the option is
available to pick from a list or enter freeform text. I thought I had found
the answer in the data validation help file, but this does not seem to make
any difference. Have I misunderstood what this means?

"To specify how you want to handle blank (null) values, select or clear the
Ignore blank check box.
Note: If your allowed values are based on a cell range with a defined name,
and there is a blank cell anywhere in the range, setting the Ignore blank
check box allows any values to be entered in the validated cell. This is also
true for any cells referenced by validation formulas: if any referenced cell
is blank, setting the Ignore blank check box allows any values to be entered
in the validated cell."