That is the general flow. Sometimes I might go reverse and find the pointers (they are usually at the start of the file after all, or in a similar named file in the same directory/one up from it -- rare for text, unremarkable for archive files) and then match that to the text before finding the text.
Text usually ends fairly obviously -- if the text is between certain values then the end of text tends to be something not otherwise seen like 00 or some obvious end of line/screen/exchange*. Get a list of locations of those (find all in a hex editor) and compare it to the things at the start of the file (possibly having been flipped depending upon the system -- most consoles not doing PC style endianess so flips tend to be warranted). If they line up exactly (or -1 as end of line is actually not start of new one, just the value before) then great, if they are some distance away then probably an offset, if they differ every time by a fixed amount (that is to say the difference between the difference is the same) then probably a relative pointer (take pointer location, add data from that location, that equals final pointer. Appears convoluted but on older systems they often were relative. Outside those systems then today you will tend to find that most in compression -- it is called sliding window for a reason).
*pointers can be used to start a new line, some games will do one for something that appears in a text box, others will use a single pointer for a whole exchange/section of text.
Main exception on newer things with file systems being if text is housed in the binary that gets stuck in RAM on boot (or some kind of overlay/dynamically loaded affair) then the pointers may actually be memory addresses as the system would see it rather than anything file level.
"look for empty space" varies with the system. For something file system based like the PS2 then while you don't have infinite space you can usually just add onto the file.
For something like the GBA where it is all one big blob but all visible in memory all the time then you usually have the rest of the 32 megabytes to play with (other than Mother 3 and a few literal videos you will have lots to play with).
For something like the NES where there is bankswitching to handle you get to find space on the same bank, or deal with swapping it.
Hopefully you have not got a length or scripting type setup (would be rare on the PS2 but not impossible).
