You select a county on the campaign map as your home territory and then select a county to fight in. Some counties provide bonus charaters or gold that are added to your army every battle. As far as I can tell, the difficulty level allows better placement of the computer opponent but they may also get better or more pieces. For instance, Knights can be bought for four gold OR two gold and two coal. Here is a description from the manual for each unit.
Archers have no effect on knights.
Knights can invade the gate square of an enemy castle. Swordsman - Cheap basic unit good for holding towns, castles and resources. It is the only ground unit that travels 2 through woods. Use of roads increases the normal movement from 2 to 3. Swordsman can invade the gate square of an enemy castle.