One unit in MED/WED equals which real-life unit? I think that the sf_alien model is about 5.5 units (grid square) high but does that mean that the model is 5.5 feet high?

Quote from another user,
That totally depends on the world size you want to build.
If you want to user physics simulation you should scale very low, i.e. for instance 1m = 32 quants.
If you want your world extremely large go further down. Maybe to 1m = 1 quant.
If you want to get only a very limited world you can go all the way up, like for instance 1024 quants = 1m.

Like nidhogg said above, but generally 1 quant is 1 inch, this is inherited over time from the old Quake editor (which WED is derived from). Again, this is no rule set in stone, as you can scale to any size you want yourself ofcourse

What if I create 3D models in 3D Studio MAX and import them into MED/WED? Version A8 of Game Studio comes with "Knights on Wheels" sample game and I wish to use replace the vehicle's body with a regular car's body and create a city to drive the car in. I don't know how the vehicle was created for the sample game.

I found out that guard.mdl model is much larger than the vehicle that's included with the "Knights on Wheels" sample game. I created a small city using blocks and textures in WED. I think that each city block is 8072 units by 8072 units. Any reason for the vehicle being smaller than the guard?

You will find, with experience, that you questions are irrelevent.
As Nidhogg and Helghast have said, its really up to you, within limits.

MOST models though, are based on the 1 quant = 1 inch system, like the guard likely is.
Knights on Wheels is scaled smaller though...

The reason your questions are un-important is because there are so many places
in the development process to re-scale any one thing or even everything.

And most external modellers, like 3ds-max or lightwave, have their own arbitrary
units of measurement so there is no correlation between them and quants...

BUT, to ease your mind, you can rescale at several points. Some of which are...
1> In MED - During the import-phase when importing from an external modeller.
2> In MED - At any later time using 'scale global' tool.
3> In WED - At any time using 'object properties' adjustments.
4> In Game via script...
Just to name a few...