How do a unit's attack/defense factor in?

I am wondering how exactly do these values get used in battle.

Is it based on if my army attacks an enemy all my units are using their attack value for the entire battle?

Or does it change dynamically within the battle?

If so, say I have a spearman group charging a stationary peasant group - I assume it would use my attack value and their defense value but what if the two groups are attacking eachother at same time?

The short answer is, yes, it changes dynamically during the battle.

The long answer:
Every time a soldier (not a unit as a whole, one of the individuals IN a unit) attacks another soldier, his attack is stacked against the enemy's defense, and from the comparison of those two stats you get a probability of the attacker killing his enemy. The charge bonus is just extra points added to the unit's attack when it hits the enemy at a run. Since every battle is made up of soldiers exchanging blows, a unit with high Attack will have an advantage in the initial charge due to its ability to inflict casualties on the first strike, but a unit with high Defense will have better staying power and will hold its ground longer.

Also, keep in mind that certain types of defense are only applicable against certain kinds of attack. Armor is always factored in, Defense Skill only counts in hand-to-hand fighting, and Shield only counts against attacks on the shielded side. Which is to say, a unit can have an impressive Total Defense but still be very vulnerable to certain types of attacks.