You can mix a block based level with models. Or use terrain with blocks and models. It is your level and your workflow.

If your whole level would just be one giant model (MDL), this would not help the community in terms of modular pieces.
You can layout your level on paper if you want and decide which parts should be models and can be reused several times within that level(doors, decorations, pipes, sewers, lights,...) and which parts should be done in WED (walls, floor, ceiling).