This is used to place weapon pickups on the ground in Counter-Strike. It works in a similar fashion to the weapon_x entities in Half-Life.
Pitch Yaw Roll (Y Z X) (angles) - Defines the angle of the weapon model (this may not be available with older FGDs).
Item (item) - Defines what type of weapon the entity should be. You can only use Counter-Strike weapons here. Not all weapons are available.
Count (count) - Defines how many weapons should be spawned. If you add more than one, it will look like there is only one in game, but there will be the number you have used and the weapon model won't disappear until they are all used up.
Placement of the armoury_entity is not crucial. It will end up near the ground pretty much the same as an info_node. Just be sure not to place it inside brushes or inside of any player spawns.