What exactly are storage units in XML?

I am trying to understand more on the physical and logical structure of an XML document. From the specification at W3C describing the physical structures:

An XML document may consist of one or many storage units. These are called entities;...

So my question is:

1. What exactly is a storage unit referring in this context?
2. Is it used from the perspective of an XML processor and how it would store and manipulate the XML document in memory or is it referring to a persistent storage used to store the document?