In our own world. Mammals are gestated internally, and have to feed from the mother before birth, from the womb. Because of this need, developing mammalian babies are fed in the womb through an umbilical chord. Once born, the chord is severed, and the point of attachment is left with a naval passage, or belly button, for the rest of the mammal's life. The only mammal that this does not apply to is marsupials, whose young are born so early, they don't have a chance to feed from the mother, and instead merely attach to the mother's nipple for the majority of their infancy. This is also why marsupial mothers have a pouch, so to carry their young, until they are ready to feed themselves.
Normally, I wouldn't be explaining this to you, but there is one fact. Marsupial children DO NOT, have navels.
In the RWBY universe, we can look at Yang, who is a human, and whose outfit bears midriff. In some instances, it is seen that she does not have a navel, but in other shots, she does have one. Since it would be highly impractical for Monty to remodel that on and off, we can assume one of two things.
1. Monty actually has multiple models of Yang (perhaps one for purpose of combat, one for non combat), some with naval, some without.
2. The model of Yang has a naval, and the shots where it appears to be missing is light conflicting with the pale color of her model.
Which ever one of these may be true, it would appear that humans, in the rwby-verse, just as real humans, do have navels.
Faunus however, it appears, do not.
Looking at both the models for Blake and Sun, a Naval never seems to appear on either of their bodies, which may allude to a case that Faunus are born much like the marsupials on earth, or this can even be taken as far as Faunus are born externally, in eggs.
This case can also be furthered by looking at Sun's character model once again. His shirt is open enough, that shots from his side can see clear across his chest, with a small space between his skin and his shirt.
Many Male Mammals have non functioning nipples, because the fetus begins as a female by default. But some animal types on earth of the male variety, are born without nipples, since they serve no function on the male body.
Sun does not have any nipples on his model, which may simply be a show of modesty from Monty, or it may further the case that faunus are born more like animals and less like humans in the rwby-verse.
Let me know what you guys think <^^>