There are all kinds of foam that you can sculpt or carve.
The models of Dracula's castle (Bram Stoker's Dracula) were carved out of what is called "Green foam" it's a soft foam that can be carved with a rasp, knife, or any sharp edged tool.
Michael's sells all kinds of foam that can be carved for many different things, Miniatures, prototypes, etc.
Many rapid Prototyping machines use foam blocks to carve out 3D models.