Yes, they do model compartments. Engine rooms, cargo holds, fuel and ammo bunkers, even substantial "empty" spaces.
Compartments have several attributes, such as HP, armor, flooding time, flotability and in some cases a damage multiplier and critical chance. If you're lucky enough to score a critical hit on an engine room or fuel bunker, the whole ship is likely to go up in a fireball and/or break apart.
The damage model is accurate enough to qualify as a sim, but it's not very balanced in the stock game. You're normally forced to deplete a ship's HP (separate from the HP for compartments), and they tend to just sink perfectly level, without much visable impact form hitting on the bow or stern, and very little listing.
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