There are two types of entities in HTML and XML, named entities like and numeric entities like  . Once the document is parsed, there's no difference between the two types, but in specific situations one type might be preferred over the other and in some cases you have to use numeric entities.
When you're working with plain HTML the best choice is to use named entities when one is available because they're easier to read. Since the HTML standard defines a wide range of named entities and they are reliably supported by browsers.
If you're using XHTML, the XHTML DTD defines the named entities so generally they should be available and safe to use. However, when parsing with a non-validating XML parser (including many browsers in standards compliant XHTML mode) there's no requirement that external DTDs be loaded. If the DTD isn't loaded the named entities will cause parsing errors. So when using XHTML it's safest to use numeric entities to avoid any problems.
EditLive! automatically takes care of these details based on the setting in the htmlFilter element in the configuration file. If you set outputXHTML or outputXML to true, EditLive! will automatically use numeric entities and if both of those are false EditLive! will use named entities. It will even convert existing entities to the right form. The numericEntities attribute for htmlFilter can be used to explicitly set the editor to use named or numeric entities regardless of what settings are used for outputXHTML or outputXML.
There are two exceptions to this, & and " are defined as part of the XML standard and work in every XML parser. As such, EditLive! will always use named entities for ampersands and quotes.