This picture should be a hint:
The setting is on the page for Results to grid. So it is quite logical that it only applies to grid results and not to text results or results to file.
As for the setting not applying to Results to text, it has always been the way that line breaks has resulted in line breaks in the output. The reason that Results to grid has this setting is that originally, CR/LF were always lost, because they were removed to fit the grid. But if you had a cell with something like SQL code, it wasn't fun to copy/paste. So they changed this with SQL 2012 to always retain line breaks. But then people who like to copy to Excel got mad. So eventually, they introduced this option to please everyone.