EatYerGreens explained most relevant points. It should be added, though, that there's a difference between a unit's own valour level and additional points bestowed upon it by the general's command rating. The +1att / +1def bonus is granted for every point of valour, but the valour bonus received from the general doesn't add to morale. So, a unit with 2 own valour and 2 additional from thge general will have a bonus of +4 att and def and +4 morale from its own valour level.

Quote Originally Posted by Derfasciti
Thanks for the info, and I've forgotten exactly how to retrain units.
Simple: Open the recruitment panel in the province where the unit to be retrained (it has to be there, of course) and drag it in the recruitment queue. Note that unlike RTW retraining takes a full turn per unit in MTW, so you might be better off recruiting a new one.