Difficulty effects in battle?

[caravel]

Command stars give +1 morale per star to all friendly units within 50 metres. Once the units go outside the 50 metre boundary this bonus is effectively halved (2 command stars give +1 morale, 4 command stars give +2 morale).

They also give +1 valour for every two stars (excluding the morale bonus).

The morale bonus is separate (not bestowed by valour as is usually the case) because it only takes effect on the field based on the distance from the general and most importantly his continued existence.

This is why a good general is so very important in MTW.

-Edit: Morale on the battlefield is very complex, remember that there is a -8 morale penalty immediately following the general's death. This can cause a catastrophic chain rout if your units are non elites with low base morale.