what would be a good way to represent a level for a indoor 3d engine. do i make it in a modeler and then load it or is there some other way? and if i make it in a modeler, then what file format should i use? i want something that is simple, but i dont want to go for a 2d approach. how do most games do this?

For laying out the actual level design, most professional quality (and non-professional) games use a world editor, which is basically a 3d type modeling program designed to aid in building levels. I suggest you try out like WorldCraft, it uses the .map file (and .rmf) and was used to create such games as Half-Life. It has a pretty simple file format once you learn what all the vertices mean... Look for the HalfLife Editing Resource Center (I think that''s it) and check for a d/l of WC3.3.
Good luck,
-Jesse