Chariots are tricky to use properly, because they are prone to falling to pieces within seconds of contact against the enemy, thus making them a liability. Plus they are awful to use in narrow streets, sometimes even deciding to charge out of a city when you tell them to move somewhere else in the city. Chariots require a lot of micromanagement to get the best out of them, which can become annoying. On the plus side, they are incredible when used to their strengths. I had incredible success with my Briton campaign with chariots when I started it.
As to campaign difficulty, upping it should make the other AI factions a bit more aggressive towards you, in theory, and I assume diplomacy is slightly harder to broker a deal, although diplomacy has always appeared to be a bit random. It's possible the AI gets further bonus to maintaining its own settlements and other such things. I really don't know to be honest, as I spent most of my campaigns just playing on hard or very hard and not having too many troubles either way. One thing that upping the campaign difficulty does do, and that is give the AI a bonus against you in auto-resolved battles. Any battle you have the game calculate will now require you to have a much stronger force to avoid suffering defeat. On very hard, with naval battles, you tend to need a 2:1 advantage ratio at the very least or you'll have your fleet sunk, with 3:1 or 4:1 battles still an uncertainty.
As to does H/M or VH/H mean campaign difficulty first, battle difficulty second, I assume that is the case.
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