When peasants, workers and skirmishers are involved in battle, they often panic and flee the battlefield when they see their mates being killed. Panic occurs after every combat phase in which a unit takes losses.
Panic occurs only when a similar unit under the same noble is lost.
If a noble is stacked with 10 peasants and 10 workers, and enemy missile fire kills 3 peasants, then at the conclusion of the missile phase, that noble's peasants will be subject to panic.