Placed sign on side of chest.
Entered text.

Pressed [R2] . 

Same as using "LF/CR" (selecting line feed  or carriage return or new line, whatever you want to call that little down and left pointing arrow).

Can be done multiple times. Will not exit from text entry for sign.

Pressing [O] button will take you back, thereby exiting sign. And displaying text as one would otherwise expect.

(Curious what happens when entering multiple lines and exiting sign and then viewing sign....)

(didn't want to try as already had a couple power failures which corrupted my save game.)