From what you said, I assume you're opening the .entity files from your actual Game Info folder in your Sins install. Those files are converted to binary to speed up load time. A TXT editor isn't going to be able to read them correctly. To mod this game, you need to download the Forge Toolset. I highly recommend that you read the enclosed PDF as it explains quite a bit about how it all works. The file can be found in this thread:
https://forums.sinsofasolarempire.com/?forumid=443&aid=176875
As for what TXT editor I use? Notepad.
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