I am using P. Elements ver 2020 on Windows 10. I created a text layer and when I select the text layer to edit, Elements won't allow me to edit or highlight text. Instead, it creates another layer.
I have reset the preferences and the issue still exists.
I have to delete the layer and recreate it to effect any changes.
Text layers have a big T in the layers panel.
Maybe somehow your text layer got Rasterized (Simplified and turned from vector text to a pixel layer), like for example, if you went to use a filter on said text layer, photoshop elements will rasterize (simplify) the text layer before running the filter.
Highlighted layer in your screenshot is raster layer as already pointed by Jeff and that is reason why you can not edit text on it.