models are entities, i think your confusing "entities" with map entities, map entities are just mini levels that can have actions assigned to them, models are, well you know what they are, but both are entities, entities include:
Models
map entities
sprites
terrains

the definition of an entity in c-script is basically something that can have c-script assigned to it.

as far as lighting goes, its a bit hard to explain, but models wont cast shadows using level lights, but there color is tinted the color and darkness of the block directly below them.