This sounds scary, so what does it mean? Basically, it is a reference to an entity registered in the game, so it is a reference to, say a mob in the game.

It might be required for you to import the package if you encounter any issues (like casting an Array), so better be safe than sorry and add the import.
import crafttweaker.entity.IEntityDefinition;

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//These return an IEntityDefinition Object
val test = <entity:minecraft:sheep>;
val test2 = game.getEntity("sheep");

So, this is where it gets interesting: What can we do with it, now that we created that thing?

Returns the ID as string

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//returns "net.minecraft.entity.passive.EntitySheep"
<entity:minecraft:sheep>.id;

Returns the name as string

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//returns "Sheep"
<entity:minecraft:sheep>.name;

The first method only creates an entity on the given location.
The second one also spawns it.
Both methods return the created IEntity.

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<entity:minecraft:sheep>.createEntity(world);
<entity:minecraft:sheep>.spawnEntity(world, blockPos);

world is an IWorld object.
blockPos is an IBlockPos object.

We can even add and/or remove mob drops, isn't that great?

This adds a normal drop, a drop that can occur whenever the mob is killed by whatever means.

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val entity = <entity:minecraft:sheep>;

//addDrop(item,min,max,chance);
entity.addDrop(<minecraft:apple>);

//addDrop(weightedItem, min, max);
entity.addDrop(<minecraft:stone> % 20);

item is the item to be added as drop and an IItemStack or a WeightedItemStack.
min is the minimum amount that is dropped and an Integer. This is optional.
max is the maximum amount that is dropped and an Integer. This is optional.
chance is the drop chance. This is optional. Not needed if you use a weightedItemStack instead as item

Same as normal drops, but only if the entity was killed by a player.

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//addPlayerOnlyDrop(item,min,max,chance);
entity.addPlayerOnlyDrop(<minecraft:gold_ingot>, 10,64);

//addPlayerOnlyDrop(weightedItem, min, max);
entity.addPlayerOnlyDrop(<minecraft:iron_ingot> % 20, 1, 3);

A drop function is called whenever the associated Entity is killed. You can use this if you need to check requirements for before you drop something, like only dropping in a certain biome and stuff.
You will need an IEntityDropFunction:

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<entity:minecraft:sheep>.addDropFunction(function(entity, dmgSource) {
	return <minecraft:iron_ingot> * 10;
	});

This removes a drop.

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val entity = <entity:minecraft:sheep>;

//removeDrop(item);
entity.removeDrop(<minecraft:wool>);

item is the item to be removed from being a drop and an IItemStack.

This removes all drops.

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val entity = <entity:minecraft:sheep>;

//clearDrops
entity.clearDrops();

This returns all drops that were added via CT as list of IEntityDrop Objects.

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val entity = <entity:minecraft:sheep>;

//drops;
val dropList = entity.drops;