Apply button (the one they were talking about) has to do with subsurfing, when you are modeling, you can see your result without applying the subsurf modifier. This gives you better control over your model when still working on it. Once you have what you want, apply modifier and it will have much more polys when going in edit mode (depending on a level of subsufing). Only now the game engine will show you subsurfed model instead of the original one.
About shading, guys allready told you what you asked but now when speaking of it I have a question about shading:
-while making a game with UV textures there are a lot of tricks of making shading look realistic so I was wondering if anyone could share some of them? To rephrase that: what do you do about shading in game engine:confused: