Very good advice from Noir - especially the bit about playing on "hard" rather than "expert", as it makes all the difference to AI morale. (Someone did make the point once that using expert is also bit of a player exploit too, as the AI will fight to the death rather than run - giving your troops more valour from more kills).

I tend to use guns for their morale effects rather than the outright kills. Careful use of the fire-at-will command is key. I tend to leave them in hold formation rather than engage at will, but either will stop them skirmishing which is a real killer to their usefulness. When the enemy come within range, just toggle fire at will and they let loose one coordinated volley like Noir said - this usually is enough to send them running. It's also a good way to use arbalests etc, too.

I also like to pair handgunners with arquebusiers, as that way the enemy are under fire longer, suffer more losses on their way to you, and consequently have a more fragile morale. Also when I play a Muslim faction, HGs (as opposed to the wimpy Mamluk ones) make a really useful addition for their melee abilities.