Is re-using materials on models faster than baking textures for each model? Say I have 10 models in the scene. They all have 3 materials on them (Red, white, and blue). I am using these same 3 materials over and over again on all of my models. Is my game going to run faster if I bake the textures of all of my models and make separate materials for each model, or if I continue to link the 3 materials on every model?

I'm using Blender Game Engine.
Even if Blender did something non-efficient, like making new shader for each object, there still would be an obvious benefit which @maddin45 mentioned. The less textures you have (the more you combine them in big atlases), the better.

As for the models themselves, think of modularity - make LEGO-like pieces and duplicate them.
http://blog.timothyeustace.com/2012/04/gears-of-war-wireframes.html