Illustrator's textFrame objects are far inferior to FreeHand's. Instead of the horizontal and/or vertical auto-fit controls in FreeHand, Illustrator's interface provides two cumbersome kinds of textFrames: so-called AreaType and PointType.
An AreaType object (usually created by clickDragging with the Text tool) cannot be set to auto-fit, neither horizontally nor vertically. A PointType object (usually created by just clicking with the Text tool) has no containing path and does not wrap. So it is effectively like a text object in FreeHand set to auto-expand in both directions. Its auto-fit behavior cannot be changed either.
There is an awkward (frankly, downright bizarre) workaround suitable in some instances: You can add an extra fill or an extra stroke to the text object in the Appearance Palette, position it below the Characters listing, and then apply the Convert To Shape Effect to the added fill. The dialog for the Effect has options for "absolute" or "relative" dimensions of the "fake" shape. So this Effect-ed fill or stroke thereby appears like a frame around the text that resizes as the text is edited (if the Effect is set to Relative size).
Welcome to the awkward interface and archaic features of Illustrator. You'll find many things that are straightforward and taken-for-granted in FreeHand that have to be accomplished by tedious and unintuitive workarounds in Illustrator.
JET