Im pretty sure it works like an aura, your generals command points etc. simply add to all of your units morale in the sense of x+y= total morale.
The generals special ability is used to, as is indicated by what he says, to rally your troops if they are fleeing the battle field. You have to close to the units for it to work, bare in mind that it doesnt always work. It seems to work by simply boosting the morale of your nearby units for a shot period of time.