One little question, in the first post, we see that the shading will be uniform per... rectangle ( I don't know how the combination is called in modelling).
So, for example, if I had one very big rectangle and a light source that would, in real life, throw shading on it, then it would be uniform shaded in wc3, not in steps, as it would be if there were many little triangles/rectangles, as in the pillar ?
What you posted in the OP (the Blender screenshot) is a simple example of a flat shading model. Every 3D model used in games is composed of polygons, triangles to be more precise. These triangles are simply made up of 3 vertices that, when connected, form a face (or triangle). Each "face" has a normal, which essentially defines which direction is the "outside" of the face. The flat shading simply takes the value of each normal, and applies the same uniform shade to that face, and does so for the entire model, which gives it that "faceted" or banded shading look.
Now, if you're looking at smooth shading, then it gets more complicated. You get into basic lambertian and phong shading models, which are quite a bit more complex.
So, there's some quick, extremely basic info on how lighting is done in most modern games.
Warcraft 3, however, is nothing like that. Getting any "real-time" shadows in WE is pretty much impossible. As Keiji has explained, we've only managed to create the illusion of it through all sorts of sorcery and trickery.
As for your question about mountains, that can be done fairly easily with some smart use of the default terrain editor. If you're talking about cliffs rather than a mountain though, then it's more difficult. In most games, all cliffs are composed of the same rock asset, rotated and stacked in place to give variety.