Q: What is the difference between the .sgf format and ePUB file format?
A: SGF just takes whatever the state of your XHTML code is in currently and dumps it as one large XHTML file (in an epub-like container, with the included images etc). The source file looks exactly like what you see in Code View.
Exporting an epub takes your source code, splits it up on chapter breaks, filters out Sigil-specific CSS and XHTML, creates CSS files from <style> tags and then writes it all out. So there is some (a lot actually) pre-processing going on.
Q: How can I use an Image for a Chapter heading (an image saying "CHAPTER ONE", and have it show up correctly in the Table of Contents (in text, as "CHAPTER ONE")?
A: You can put anything between the heading tags to make Sigil link to it in the NCX, and set the "title" attribute on the <h#> element to get the text.
So, "<h1 title='CHAPTER 1'><img ... ></h1>". The TOC would link to that heading element (and by extension, the images inside it) and the TOC entry would say "CHAPTER 1".