I use a combination of the two. I run it in on a stand for a few tanks to find out if the engine has any air leaks or other problems. Once it will idle somewhat reliably and transition well, then I put it in the plane and fly it. Lots of loops...

Now it DOES matter what kind of engine you are breaking in, as far as how you would run it on the stand. You will not break in an ABC engine the same as one with a ring for example.

Jim