I don't have Ulysses, so I can't test there. But the regular Markdown syntax for paragraph and line breaks works for me in Editorial.
For a paragraph break (i. e. a new <p>...</p> in HTML), you need at least two newlines (at least one blank line in between paragraphs). For a line break without starting a new paragraph (i. e. a <br/> in HTML), you need to type at least two spaces and then a single line break. If you don't add the two spaces before the line break, it is ignored and replaced with a space.
Also, the HTML preview automatically wraps most text so it fits on the screen without horizontal scrolling. That isn't specific to Editorial though - HTML text soft wraps by default unless you disable it using CSS.