@Cartographer, thank you for your response.
I completely understand Esri's logic behind the font size, but I can't applaud it. Of course there are letters of different size, but what happens when I choose font size of 7 mm? The thing that happens is that there is no single letter with the height of 7 mm in my text. So we can't talk about font size, precisely it is only the measure of the space reserved for text in Esri's annotation engine. The only solution that sounds reasonable to me is that the font size should be the size of capital letters. The other letters are smaller and can be fit in specified size. But, that is only my opinion.
This is the only thing that causes my problems. I didn't say that the size of my text is 25 millimeters. I said 25 meters. That's when I measure the size of the capital letters in my map document (data view) using ArcMap "measure distance" tool. I specified annotation text height of 7 millimeters, font is Arial, reference scale is set to 1:5000. So, when I measure the text in the map document, the text height should be 7mm x 5000 = 35 meters, not 25 meters!
When I print the map in the scale of 1:5000 and measure the height of capital letters on a paper using a ruler, the size is 5mm, not 7mm as I specified.
So, in the end, I understand where is this coming from, and the only solution for me is to try with different text size over and over again until I get 35 meters size of capital letters in my map document, e.g. 7 millimeters on printed map.
I forgot to say that when I choose different font, I get different results. That fact backs up Esri's explanation concerning the way the text size is determined.
Thank you again,
Regards,
Mladen