Dear Hszhao,
Yes I can confirm your understanding.
1) Yes, if you do finite temperature calculations the electronic entropy gains physical meaning since there is real temperature in your system.
2) If you want to take into account electronic and vibrational entropy you have to compute Helmholtz free energy differences from molecular dynamics to obtain the binding energy. Free energies (taking into account ionic entropy) in VASP can be obtained by thermodynamic integration. In thermodynamic integration you have a harmonic reference system from which you slowly switch on the full ab-initio potential. As shown in this equation:
V=TILAMBDA*V(ab_init)+(1-TILAMBDA)V(harmonic).
By integrating this equation over TILAMBDA you can obtain the correction to the Helmholtz free energy to take into account entropy.
For further information I recommend reading the following wiki pages and also the papers which are linked there:
wiki/index.php/Thermodynamic_integratio ... _reference
wiki/index.php/Thermodynamic_integration_calculations
wiki/index.php/TILAMBDA
All the best Jonathan