Prefabs are pre-made objects created in the editor. They can be made of models, brushes, or any other type of entity. Your typical workflow using Leadwerks will be to import models into the editor, add physics, properties, and any special entities you want to add, and then save this game-ready object as a prefab. If the model file is later revised, the information you add to the prefab won't be lost, as long as the model hierarchy doesn't change.
Prefabs are loaded from ".pfb" files. The prefab file format is identical to the scene file format, with the added condition that prefabs expect a single top-level entity to exist in the scene hierarchy.