The Label Fitting Strategy tab of the Placement Properties dialog box lets you control how the label engine attempts to place labels.

Polygon feature labels are allowed to overrun the boundaries of the polygon, if that allows them to be placed on the map. You can uncheck the Overrun feature box to force labels to be placed inside polygons. If a given label is larger than its polygon it will not be placed when this constraint is enforced.

You can set the Maplex label engine to make labels smaller, when space is limited, in order to place more labels on the map. There are two ways to reduce the size of label. One is to reduce the font size of the label, and the other is to compress the width of the font. To reduce the font size of the labels, set a lower limit on the font size and a step size to control how many font sizes between the label's original size and minimum size get tried. To compress the width of labels, set a lower limit on the amount the labels will be compressed (expressed as a percentage of the original font width), and a step interval.