Drop down lists are formatting options that must be applied to a specific field you select for this format on your layout. They also require the creation of a value list set up to list the values you want to see in the drop down.
The "looked up value" auto-enter option, what I think you described in your post, is a setting that copies data from a related record during data-entry. This often is used in conjuction with a drop down list formatted field that is used to select the appropriate related record, but it does not cause the creation of a drop down list automatically.
You may want to look at this thread for more details on two approaches to setting up your layout so that selecting a value in the drop down causes the data from the related table to appear: