Entities are variables that can be extracted from the user input.
The entity component is used to configure how the entity is going to be extracted and validated.
The entity name is important because other than being helpful for the configuration, it will also be used as a key when saving the extracted entity in the user's session.
The entity type defines the format and rules a valid entity must match. There are some system types supported out of the box, such as Date, Number and Free text and you can define your own custom types. More about defining Entity Types here.