When changing the formatting of a text box on a document or dashboard the Default setting is presented.

When it specifies the underlying layer it is referring to the underlying object that the text is referring to. Thus when using dynamic textboxes it will not pull formatting from the underlying report that the object lies on. It will carry over formatting from the underlying object itself. An important corrollary is that changing formatting at the report level will be for report display ONLY, and will simply take precedence over the object formatting.
This is illustrated with an example on a metric object called TestMetric
In levels of formatting the TestMetric will look this way.
1. Metric level formatting
2a. Report Level formatting - will use metric level formatting by Default, or can overwrite it for report display
2b. Document Level formatting - will use metric level formatting by Default, or can overwrite it for document/dashboard display.
If TestMetric is formatted as Currency, Default on a report or document/dashboard will also display a currency.