Welcome to Stack Overflow! Coincidentally, the main problem with your code is that it is vulnerable to a stack overflow. scanf has no way of knowing how big userInput is, because you didn't tell it, and will happily continue filling memory long past the end of your very short array.
If you want to capture exactly three characters (with no nul terminator), use scanf("%3c", userInput) instead. Note that without the NUL, you must not expect to treat userInput as a string; printing it via printf for example will result in a random amount of gibberish owing to the fact that C does not know where the string ended.
Now, to answer your actual question on "what's the difference between malloc and the static array": the difference is of scope. If you only ever use userInput before its creating function returns, there is no practical difference, but you're in trouble the minute you try to do something like this:
int function1 {
char my_string[3];
scanf("%3c", my_string);
return my_string; /* WRONG! DANGER! */
}
The return in the above example will happily return the pointer to my_string to the calling function. However, as soon as function1 returns, the stack is rolled back and the memory my_string occupied is essentially gone (and likely already re-used). The results are unpredictable but almost universally very bad for your program.
However, had you used malloc() instead, you could safely return the my_string pointer and the memory would persist until someone later called free(my_string) (where my_string is the pointer to the original my_string; it need not be named the same!).
This highlights another difference: with a stack variable such as char my_string[3];, you do not need to worry about (and indeed cannot) free() the memory, where as if the memory is malloc()'d instead, you must free() it if you wish to reclaim the memory.
There are some nuances to the above, such as file-scoped variables and static function variables, which I leave as topics for further reading.