Thank you for your question. Media entity vs. File entity causes a lot of confusion in the community. They started as two competing storage solutions for media in Drupal 8. File entity built on top of what core provides while Media entity went from scratch. Main reason for this decision was solid support for so called remote media. File entity has struggled with this in D7 times already. Media entity, on the other hand, solves this problem very efficiently while not compromising on support for local media. This is also one of the reasons we decided to include it into core.
When core starts using Media entity by default you won't need File entity anymore. New sites will get Media entity based solution by default while we'll let old sites use whatever they are using now. The latest time when migrations will need to happen is Drupal 9.