Every character of text has a width and height measured in pixels. If a character is smaller than around 100 pixels in either direction, most people will feel that it's starting to become "pixellated". If it's less than 10 pixels in either direction it will look awful and the problem will be obvious to anyone.
Inadequate text pixel dimensions tend to occur for two reasons. The first is obvious, while the second isn't so obvious. The first reason is simply that you set the font size too small. So, to read it, you zoom in and you see every bump and stairstep on the edges of the character. It looks horrible.
The second and more common cause is indirectly causing the problem described in the previous paragraph: If the overall size of your image (as measured in pixels) is too small, to fit a reasonable amount of text in the image, novice users are tempted to reduce the font size. Reducing it too much takes one right back to the problem described above.
So, my guess is that you were working on a small image (as measured in pixels) and to get the text to be a reasonable size relative to the other features in the image, you reduced the font size excessively. The solution is that if at all possible, always work on images that are at least a couple of thousand pixels in both directions. If you absolutely have to work on a small image, be very careful about how much text you try to cram in, LOL.
HTH,
Tom M
PS - Notice that for this discussion, I never once referred to the size of the image in real-world units llike inches or cm. The only place this becomes important is when you go to print the image.