Your terrain will slowly spread from your cities until it encounters impassable terrain or the enemies expanding terrain. Send an archangel to plant a rod next to it, and a bit of your terrain will spread from that rod. There are items that can be used by heroes, such as the obligatory healing potions. Heroes can also equip items such as banners that will provide bonuses to their troops. Heroes can also cast spells, but none of the spells can be cast in combat like AoW or the Heroes series.
All spells are global.
Another trick I've found that works fairly well is to summon a few creatures and send them to die against a strong army before your own troops face them. The summoned creatures will usually kill something, and if not weaken it, making your real troops a lot happier and more alive. The AI tends to like this strategy a lot, so keep in mind if that if an enemy army approaches that you should be able to take easily at full health, you may not be fighting them with full health by the time the battle occurs. Commenting on graphics or sound would be mildly inappropriate at this point, as many of them are not finished or even started. Currently spells have no real animation, and battle animations are simply placeholders until the real animations can be completed.