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Surely that means 'text' (i.e. the picture of a word) in the graphic itself
Yes, like the webmasterworld.com logo text in the top left corner of this page.
I wouldn't bother using them. They just act as a big red flag for search engines. Wouldn't look good under a manual review!
Don't bother then, but the quote I posted above is what Google actually advises us to do. They don't have a problem with it. They actually say that we should do this and in my experience it works. I think that it is a flag for the search engines but not a red one (and Google don't do manual reviews).
Google does use manual reviews and does ban sites manually. This is a fact. I have seen sites get a ban for hidden text, etc.