I'm not really sure what's the point of this exercise instead of a regular FizzBuzz. Dealing with strings in C is tedious, error prone and results in very verbose code but it's not really difficult per-se. What is this testing for exactly?

If I had to do something like that in a real program I'd very much overalloc a few bytes (because why not? If those small allocations really become a problem in your app you probably want to use a custom allocation scheme anyway) and then just snprintf the result into it. I'd go even further and say that code that would micro-optimize this to save a couple of bytes at the cost of maintainability shouldn't pass a code review IMO.