Is custom entity type a content type
A "Node" is an entity type, and content types are entity bundles of Node (Article, Page). Also referred to as node types.
A custom entity type can be anything else you wish to create and may or may not have bundles depending on use-case; for example, User does not have bundles.
There are definitely cases where you may have data that is not Node based. You will know further cases when you hit that point.
Example from my 2018 project
The only offhand example I have is from a 2018 project where part of the site needed to display a decoupled app showing bookable rooms across the campus with information about each room. I created a custom "Room" entity type, exposed a REST route for it and such. A much older example would be a "Listing" entity type, this time with bundles: Residential, Commercial, Industrial, Lot, etc... because they all have different fields and usage, but all subtypes of the same parent type.
What you gain is a consistent way of dealing with the entity system and discoverability of the rest of Drupal, with the freedom to dictate how your entity functions or is used without being tied to Node or everything hooking into / acting on Nodes.
I think this is a confusing point in code/docs for Drupal because they all extend
ContentEntityType but that does not imply that they are equivalent to what are called content types in the admin, nor does it mean a custom entity type is thought of as content in the way that nodes typically are. I suppose you don't have to extend ContentEntityType, but if you use Drupal Console to generate a new entity class, it will come that way.