Could someone please explain to what text boundaries are and specifically why would you use them?

I was once told that its best to keep within text boundaries because if you print a document and the text is outside the text boundaries, it may cut off. Is this correct?

You have text boundaries confused with the non-printing area. See:
http://www.addbalance.com/word/textBoundaries.htm

As for the non-printing area, most printers have a zone at the page edges reserved for paper handling, in which they cannot print. If you make the page margins too small (typically less than 0.25in/6mm), Word will display the following warning when you try to print the document:
One or more margins are set outside the printable area of the page. Choose the Fix button to increase the appropriate margins.

__________________
Cheers,
Paul Edstein
[Fmr MS MVP - Word]