Anakuj: The AI factions get a bunch of extra economic bonuses. The reduced bonus option means the AI gets less money, which mostly means you face fewer stacks, and the development pace is a bit slower.

By default units have two hitpoints which means that each man has to be hit twice before he dies. That generally produces longer battles, and reduces the effectiveness of ranged weapons. The one hitpoint option plays more like vanilla RTW.

Feel free to use the signature image: http://img198.echo.cx/img198/6338/xgmsig1fm.jpg