Gold is taxed from the people and used for just about everything. Once you've got a stable economy going, it's time to start building your army. In fact it's usually a good idea to do this early because chances are that the enemy will come knocking on your door sooner rather than later. Once you've finished fiddling with your Ballacks, you can consider mounting your troops. I'm talking about putting them on horses, of course.
Horses make the troops faster and able to take much more punishment.
Another thing to remember is that once outside your city, the troops will slowly begin to starve and therefore become weaker. To combat this you need to set up a supply lines, with peasants transporting food to camps outside the city. An interesting idea in theory, but in practise it doesn't quite work because there's so little incentive to send your troops out marching when they could be protecting your city. The consequence of this is that nine out of ten battles are just assaults on the enemy city. Object Software have tried to increase incentive by adding random little towns on the maps for you to conquer, which you can tax and get gold from - but since you're rarely short of funds, there's never much point.