It's supposed to make SMD, DMX and VTA files, however it does allow compiling QCs you make yourself. Personally, I prefer using cmd.exe to make StudioMDL compile models.

As for the materials, can we use Blender internal or Cycles materials? Or do they have to be textures only? if the latter, is there a limitation for the image file type it has to be? Can it be JPG?

And what about the MDL file, is it done by BleST too?

Only the name of the material is exported. The Mdl file is the output of compiling your exported files with Studiomdl, which as Vintage points out can be automated via one of the panels in Scene Properties.

Thanks Artfunkel :)