Assembly.
Which sprites it uses are dependent on the frame rects. As for the sprite sheet, I'm not exactly sure how to change which sheet an entity uses, but it's probably possible.
Yeah, you can make new entities, but you have to edit the assembly code of an old entity.
If you wanted to add a new entity without getting rid of some old ones, that might be possible, though I'm not sure if that's a practical necessity, unless you were planning to use every single entity from the original Cavestory and then add a few.
You're limited to what you start out with. You probably COULD add new ones, but it would be much easier just to wipe a currently existing entity's code and overwrite it.
Also it is pretty easy to copy entity code into another entity (so long as the code length you're copying is smaller than or equal to the entity's code length that you're overwriting.) The only thing you'd have to fix if you were to directly copy it is the CALLs made in the entity code, since those would all be messed up if they were moved.
Concerning whostony and landonpeanut...
Which sprite sheet an entity draws from is actually accessible from the npc.tbl, and fully editable with Cave Editor's npc.tbl editor. But if you want to move where the frames are drawn from on the sprite sheet itself (the frame rects), then you will need to use some assembly. Changing frame rects is probably one of the easiest of assembly hacks though.
If you want to do it the fast way without having to screw around with assembly and offsets (what the fuck are they anyway?) just open up CE's NPC editor and find whichever entity the bosses are, and just change their HP to whichever number you want. But if you want to change their speeds and stuff...Well you'll need to screw around with assembly and offsets.
The undead core is a boss thus it does not have an entity number
You set it with the special boss settings
It also cannot be moved or really edited at all without heavy ASM hacks.
You copy the required paperwork from my blog.
Fill it out.
Send it to me.
Then I may approve it.
Then you send me your mod .exe
Then I make it double resolution.