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Getting into Trouble
As mentioned in previous Updates, Combat can come as a result of Opportunities (your Covenfolk are ambushed, you prepare a raid against the local banditry, something goes terribly wrong and so on) and during the course of quests. Combat is party based, highly tactical, abstract and very old school.
The Middle Ages were Lethal
First of all, combat in the Ars Magica tabletop game is not something to take lightly. For those of you unfamiliar with the rules, hitting or missing is determined by a simple roll based on Attack and Defense factors, with degree of damage based on your weapon and the defenders ability to Soak, or resist, wounding. A strong and well-armored warrior can dispatch many foes...but eventually even the greatest will fall due to fatigue and wounds. A weak and unarmored wizard, on the other hand is hopeless in a melee, and a dagger in the right hands can end your favorite character in a heartbeat.
Be careful. 
Combat in Years of Conquest uses the tabletop system in full and adds in an extra dimension of environmental effects. On the tabletop, you have a GM to tell you what your surroundings are, and in the video game you have the Environment. This is an abstract set of features and conditions which are reachable by any party (with some restrictions on positionality) within the bounds of the combat. Its very diverse, and can range from a tree, your wagon, a muddy pool and a boulder, all in one encounter.
Negotiating with the Battlefield
Your party, and your opponent, use these environmental features to take shelter, improve their defenses, carry our special attacks, and to gain other bonuses. Unlike other tactical rpgs, the limits of your positional tactics arent flanks and area of effect cones, but rather the interaction of where youve positioned your characters versus where theyve positioned their characters, and how you can best use that to your advantage. Characters themselves can be features, too- an important distinction when you really need to protect someone, for instance your mage.
A quick example of a typical combat situation might be helpful here: a warrior is making use of a Narrow Ground feature so that your melee can only attack him, and no one else on the field. Meanwhile, an archer is at a Tree Limb feature, which improves his ranged attacks. You might instruct your characters to contest the Narrow Ground feature and rob the warrior of its bonus, direct your mage to snap the Tree Limb and send the archer plummeting, take cover behind a Boulder, or make use of a Witty Taunt action to bring the warrior to you (thereby removing the feature from them.) Only through careful use of the Environment will you be victorious- and since unused parts of the Environment refresh each round to reflect the shifting circumstances in combat, youll need to be constantly adapting tactics to succeed.
Magic and the Environment
For most of your covenfolk, features offer variations on key concepts: attack, defense, denial and movement. For your mages, however, features offer unique ways to set your opponent on fire, snare them, charm them to your side and empower your magic. Every feature usually has one or more spell action associated with it, allowing mages proficient with spells (or good at Spontaneous Magic) the ability to use the Environment against your foes. Turning your opponents Narrow Ground into a muddy trap, using tree branches to capture the archer or tossing the boulder on top of a bandit is just the beginning...
Sweet Victory
Combat continues until one party flees, surrenders or is charmed into submission. And if you hold the field youll able to recover your wounded, loot, and progress...if not, well...you might find some of those lost items in a merchants inventory down the road. No promises.
