NOTE: Documentation applies to Phraseology 2.0 or greater, shipping Feb. 2014!
Dropbox is a file synchronization service.
Phraseology is not a "Dropbox text editor" like many on the market. If you want to open and save documents directly to files and folders in Dropbox, there are many other good options in the App Store (Note, Phraseology can import/export documents from the Dropbox app and other editors – just does not directly sync with file and folders).
If you have a Dropbox account, you can, however, link it to Phraseology in Settings > Dropbox, and Phraseology will store version histories of document changes in the /Apps/Phraseology folder of your Dropbox.
Once you have linked Dropbox, Phraseology will transparently save versions of your document as you make significant changes. You can then tap the "Versions" button (clock icon in top right of screen), and view the list of past versions of your document.
Make changes you later regret? Select a past version, and tap the "Restore this Version" button and your document will be rolled back to the state is was in at that time.