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The Way the Words Work (Lite)

If you wanted to modify the vanilla entities without cutting them you could load your language overhaul after vanilla_entities, and then select the entities and add the symbols. You're mod would still replace the vanilla_language so that when vanilla_entities is loaded the symbol tokens are ignored (because the symbols they reference are undefined).

They way you set it up now, you replace/conflict with the vanilla language module. So, when we load your mod before the vanilla entity module, the changes you make to the entities will be ignored. And when we load your mod after the entity module, the default symbol definitions in the entities will be ignored because they reference symbols that aren't defined. I think that's how that works, I could be wrong.

Load order depends on if you have the object definitions you need (no references to undefined objects, which will be ignored). So, If you pass MOUNTAIN to SELECT_ENTITY but the MOUNTAIN entity has not been defined yet, the following tokens will be ignored.

Thanks for catching that, I'll go patch that in. Last time I tried to load entities before languages it didn't work, so I got no idea how to structure the load order.

Also the mod should be loaded after vanilla_entities

You forgot to change [ENTITY:FOREST] to [SELECT_ENTITY:FOREST]. Same with EVIL and PLAINS.

The lite version is just as compatible with modded/custom civs (I've loaded one of mine in without issue) as the full version. The split is moreso intended for if you wanted to use a mod that used CUT to change the default entities.
There are reasons why you'd want to do this, for example if you wanted to edit a noble position you'd have to redefine the whole entity. Adding new ones is fine, but there's not any ability to remove or go to entity tags in a lightweight manner.

It's also useful for if you want a world without the default civs, as the lite version doesn't have to add its own version of the default entities.

The dwarf names will be generated differently than the full version. They'll use the ARTIFICE and EARTH symbols, as specified in the vanilla entity description, rather than the unique ones hand-made for them. They will be affected by the changes made to these symbols (word lists), as well as the changes to word assembly.
ARTIFICE has been changed pretty heavily in this, since I split it from the dwarven name list it's now more focused on gods of craft. There are a lot of the same words in it (axes, hammers, metals), but you won't see an Urist, as "dagger" is now only associated with the VIOLENT symbol.

So I'm dumb-does this make it more compatible with modded/custom civs? Does it still have the same affect on dwarf names?

This doesn't cut the default entities.