Peace be unto you,
Derek.
See, NOW we're having a juicy conversation!
First, I must say that "demons" is a pretty loose translation I used. The proper term is "jinn". In the English rendering that comes out to "genie", but then you guys think of like Aladin and his lamp and other silly stuff, haha. We believe that Satan is a Jinn, and Jinns (which is sometimes translated as demons) are made out of smokeless fire. So the two--angels and jinns--are distinct creations, one made out of light and the other made out of smokeless fire.
No, we don't believe this. We believe that they are two distinct creatures. However, we believe that The Satan (Iblis in Arabic) was--before the creation of humankind--a very pious servant of God. He was so pious that he was elevated to the rank of angels. So he was not an angel literally, but elevated to their rank in honor, i.e. honorary angel. However, then God created human out of dust and clay, declaring humankind to be superior to both angels and jinn; because of this, The Satan became jealous and filled with envy, which caused his fall from God's Grace and Good Pleasure.
The Jinns (demons) are given free will, just like human beings. Some of the Jinns are submitters to God (Muslims), whereas others are transgressing disbelievers, who are the Shayateen (i.e. little Satans, the descendants of The Satan).
It is *not* metaphorically speaking. It means they are literally made out of light.
However, you are 100% correct to say that humans--unlike angels--have the ability to attain discursive knowledge. Angels, on the other hand, are limited to immediate knowledge.
We believe that God is above all of course, and no comparison between God and His Creation. (Which you also believe.)
Yes, we do believe that the Angels are at the top, although pious human beings are above the Angels. That is one of the reasons we believe that Free Will was given in the first place, because a person who attains a state of purity on his own free will is superior to the one who is simply programmed to do that. For example, a husband who gets a gift for his wife on his own initiative gets more brownie points than a husband whose wife drags him into a store and forces him to buy a gift.
Therefore, although Angels are generally above humans, the extremely pious human beings are above the Angels.
And yes, of course animals and plants would be below human beings, although we believe that some human beings--the disbelieving transgressors--can become lower than the animals in rank. The Quran says:
"Have you seen him who takes his own evil desire for his god? ...They are like cattle. Nay, they are worse than that!" (Quran, 25:43-44)
So basically, free will allows mobility in rank. It can enable you to reach a status higher than the angels, or it could plummet you to a status worse than even the dung worm (a worm which pushes through its own feces) or dung beetle. I say dung worm because Prophet Muhammad [s] said that the racists--who boast in their tribes and nations (i.e. white supremacist, Arab supremacist, black supremacist, etc.)--are worse than dung beetles or worms that push through feces. Prophet Muhammad [s] said: "If they do not give this up, God will consider them lower than a lowly worm which pushes itself through feces." (Abu Dawood)
Similarly, Prophet Muhammad [s] said about the racists:
"In the sight of God, they are more contemptible than the black beetle that rolls a piece of dung with its nose. Behold, God has removed from you the arrogance of the Time of Barbarous Ignorance, with its boasting of ancestral glories. Man is but a God-fearing believer or an unfortunate sinner. All people are the children of Adam, and Adam was created out of dust!" (Mishkat al-Masabith)
So yes, generally speaking, it is Angels on top, then humans, then animals. However, humans can--due to their actions--go either way.
In the Care of the Lord,
-Saladin.