Hi Tyler - basically you don't really have the option of continuing to extend your visit for up to two years, and you wouldn't really be able to have a life here in Canada that way anyway as you wouldn't be allowed to work or go to school. So, you need permanent status and the most expedient way to get that is to be sponsored for PR by your fiancee. There is a caveat to that, though . . . in order for you to qualify to be sponsored by her the two of you have to either be married, or you have to have established a common-law partnership by having co-habitated for at least one continuous year. If/when you can meet that qualification, the two of you should file an application for her to sponsor you for PR.
There is a lot of confusion about filing an "in-country" vs "outland" application. I hardly
ever recommend that a US citizen apply for PR via the
inland application - it's not necessary, even if you are staying in Canada with your partner/spouse, and there are some significant disadvantages to the process. For one, as you asked, you risk the inland ap if you leave Canada during the process because you are required to be resident in Canada with your partner in order to be approved, as the entire process happens within Canada (hence, "inland"). So, if you were to leave during processing and you were not allowed to re-enter Canada, the application is forfeited. And yes, US citizens have been refused entry to Canada for all manner of reasons - I've been there! Secondly, there is no right of appeal to an inland application, and the processing takes from 12-18 months to finalize. There is the advantage of a work permit option about 5-6 months into the process BUT if you file an
outland application, and there are no complications, it's likely you'd have a finalized PR visa by 6 months and you'd be able to work anyway! The outland application allows you to travel because approval is not dependent on your residence - you could still be refused re-entry if you left Canada, but it wouldn't affect the processing of the outland ap. And there is a right of appeal. The one "disadvantage", if you're in Canada during processing, is that you'd have to attend any required interview at the visa office in the States - but there is a way to minimize that inconvenience, too, and I can give you more info on that when you're ready.
If you stay in Canada during processing it's important that you continue to
apply to extend your temporary status,
before expiration of the status you received on entry - until your PR is finalized. Applying to extend your status is important, and as long as the extension application is received by CIC BEFORE your current status expires, you will have "implied status" to remain in Canada legally until they make a decision on the extension - but, as Leon mentioned, you can only apply to extend as a visitor. You cannot work or go to school without a separate permit - and those permits normally take longer to get than PR will . . . depending on whether you are actually qualified to apply as a sponsored partner now.
Check out the
US2Canada website for more US spousal/partner specific information on applying for PR.