1 valour adds (theorically) +1 attack skill, +1 defense skill, and adds morale (+2 in previous TW, I don't know how much in M2TW, but it gives a morale boost). It also increases missile accuracy, although is not represented in stats. So, valor represents experience, and not a tecnological advance.

Armor upgrade gives +1 to armor (and therefore troops look shiny), which implies +1 to defense from all directions, and for both ranged and melee attacks. Defense due to valour only gives defense against frontal attacks, and only in melee.