The unit commander starts out with an apparently random amount of dread, from what I've seen it's usually between 0-2 skulls. After that, dread is increased/decreased based on various vices and virtues that the commander can pick up. Not all dread-related VnVs are battle related (Fanatic, Alcoholic, Bad Temper, etc.).

Regarding VnVs stemming from prisoner executions, if I'm not mistaken those get applied only to the ranking general of the battle.