On Hard/Very Hard Battle: The AI gets a +4/+7 combat bonus, but its just as dumb.
On Hard/Very Hard Campaign: The AI gets a bonus when you Autoresolve a battle, and free Money. Plus, its much more productive, hostile, and won't do Peace Treaties, etc.
On Medium Battle/Campaign: No bonuses for you or the AI.
On Very Easy/Easy Battle/Campaign: You get the bonuses. Plus the AI's very laid back
Note: Battle "combat bonus" seems to effect AI unit morale and unit kill rates.
Perhaps somebody could explain exactly what the bonus does? I've always assumed its to Morale/Attack.
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