HPL2/Tools/Level Editor/Entity Editmode
Entities are vital components for a map, be it decoration or be it gameplay wise. Creation of Static Objects and Entities are very much alike, and so are creation tools for both.
The only point that differs in the Entity creation window is the Create on surface feature, that will help creating stuff on already created surfaces. The buttons next to this option indicate what kind of geometry objects will be considered by the tool (St: Static Objects, Pr: Primitives, En: Entities). The tool will try to position and align the object according to the orientation of the surface it is pointing to.
More on entities here.