OK Now it si very simple.
The defensive units like spearmans must be in HOLD FORMATION.
This is good becouse spearmans and pikemans have a rank bonus and you must keep them in order to get this bonus.Holding formation is for holding position(no retreat )
Atacking units like cavalry or swordsman must be in ENGAGE AT WILL. Their role is to kill in battle. When they engage the can outflank the enemy unit if they have long enough front line and the other reason is that more of the troops will engage at the battle(not like spearmans where only the first line is fighting and the other are giving support to it).