It really is text, with just a different extension.
2 types of modding files, BIN and TXT.
Bin is optimized and TXT is for editing. In the case of entity files BIN and TXT will both have the same extension (.entity). The very top of the file will state either BIN or TXT.
First, do not edit the base game files. You can download the set of files already converted or use someone's GUI to help you or the original way which uses a DOS window (Convert Data Tutorial).
Start a mod to place your edited files into, then in-game, enable the mod and test with the DEV.exe's
http://soase.weebly.com/modding-basics.html to start modding
http://soase.weebly.com/developer-exes.html for testing
Also trying to save files that are located in the Program Files directory usually are semi protected and you must be an Administrator but again, DO NOT edit the base game files.
Lots of other modding help at SoaSE.weebly.com
EDIT: Ahhh pretty quick.
Yes that file is the KOL capital ship.
Can you paste in the lines of code that you changed?
Also it needs the .entity extension and NOT the .txt extension.