When I text another iPhone user I see the balloon with the three dots but sometimes no message appears after the three dots.
Is it possible they are typing a text to a different user?
The 3 dots indicator appears when a user is typing and they have enabled the "Show typing" setting. However, they may start typing and then decide not to send the message, or stop to do something else, and therefore the message is never sent. The 3 dots indicator is not an indication that a message is incoming, simply that the user is typing.
The indicator only appears when they are typing a message specifically to you. It does not trigger when they are typing messages to others.
However, the indicator can get stuck if there are network errors or slowness, if the server is overloaded or has stale data. In practice, it can remain stuck until you get another complete message from that sender or you decide to delete that conversation.
The person might accidentally typed a letter. Hitting space right before the home button will trigger the three dots in the other end. I see this happen a lot to friends that either doesn't understand that the touch screen recognizes every tough as input or they just don't care. If they don't empty the message box it will continue to show the dots for some time. And if they're in an area with bad coverage Apple's iMessage server might have received the started typing command, but never got the clear command, or if you're in a bad area your phone might have received the started typing command, but not the clear. Usually happens to me when travelling on country roads.
Read instructions here.
It simply means they decided against sending a message after starting to type one.
You can find a detailed breakdown of when that indicator appears in the April 2015 Slate video, "When Can Someone See You Typing? Explained." On iOS, the indicator appears as soon as the user on the sending end starts typing. It only goes away when either that user sends a message, or 60 seconds elapses. In other words, if they type even a single keystroke (perhaps accidentally) but don't push send, you will see the Typing Awareness Indicator for sixty seconds.