Battles are resolved with the front unit of each army fighting. The survivor then takes on the next unit on the opposing side. This continues until one side or the other is completely destroyed. There are no retreats, no magical combat, no unit tactics. Heroes and other Units Heroes can have a major impact on the movement rate and combat ability of a stack they are with.
Leaders can improve the combat rating of a unit, improve morale, frighten the opposition, etc.
These abilities, especially when leaders have become high level, mean a stack led by a powerful hero is much more potent than one not so led. Leaders gain experience by winning battles, conquering towns, searching ruins and undertaking quests. As they rise in level they get skill points you can spend on new or improved abilities. Heroes may also find, and sometimes purchase, magical items that improve their abilities. Each player has a unique set of unit types they can field that are appropriate for their side.