This guide is the result of conversation with Les, the lead developer, about how the AI army size works and what factors make AI armies stronger. I asked him if I could summarize it here for the community and he encouraged it.

Knowing more about these factors will help you adjust your expectations as you progress through the game--and give you tips on how to adjust your experience.

AI ARMY SIZE
The factors for an opposing AI's army size are, from most to least important:

1. Your army capacity to command (whether it is full or not, so for example 12 troops)
   
2. Total experience of your heroes (normalized per campaign)
   
3. Difficulty multiplier (roughly .5 easy, .7 Normal, 1.0 Hard, and 1.4 impossible)

NOTES ON AI ARMY SIZE:

• Heroes get +1 army size for each rank; at most two heroes are counted, and minor heroes are ignored (the ones without medallion symbols).
  
• Some races get a bonus or a penalty (+2 for orcs, -1 for dwarves, +2 for Ratmen with Slavemaster)
  
• The Ring of Command also gives +1 army size
  
• You can tweak the base size of your army in the options, but you can't change the +1 per hero rank
  
• This means if you have a capacity of 12 troops and you only bring three, you're still going to face an army sized for 12.

AI ARMY QUALITY
The quality of the AI army depends on a budget they get to spend on units, upgrades, and gear.
Factors that influence it, from most to least important, are:

1. The "cost" of a sample of your most expensive units, taken from the total number of units you might deploy
   
2. That cost factors in how much you've invested in those units, such as experience points, upgrades, and the cost of equipment they may have
   
3. Difficulty multiplier again (see above)
   
4. The "skull' rating is an indicator of all the above, and its set when the map appears.

AI ARMY QUALITY NOTES

• Units in reserve count as active units for the above calculations. That means moving a bone dragon to reserves doesn't lower the quality of AI armies, since he will probably be included in the sample for expensive units.
  
• Conversely, if two cheap units want to join you, taking them won't impact how difficult your fights are since they probably aren't included in the sample for expensive units.

OVERALL: HOW TO ADJUST THE DIFFICULTY OF YOUR FIGHTS

• If you want to face smaller armies, hold off on ranking up your heroes, reduce your army size cap through the options menu, or lower the game difficulty
  
• If you want to face weaker armies, use cheaper units, or lower the game difficulty
  
• If your army is at the smallest cap given your hero ranks, and fights are already pretty big, that's means you're in late-game progression

A big thanks to Les for clarifying all of this! Have fun playing Age of Fear! 😀

PS - I can't really answer questions about this guide, but Les can. I've made a thread for it here: https://steamproxy.com/app/431520/discussions/0/4358999171571094236/

Originally posted by Les:

Please keep in mind that the AI composition algorithm is quite complex and has some rubber-bands built-in to prevent total party wipe-out.
However, generally speaking the guide is on point.