The Difficulty Level

[Templer_12]

From the manual:
Scenario difficulty:
"The difficulty level of the scenario will affect the strength of AI controlled players.".

Can you be more specific?

[Lukas]

It affects the maximum and starting strength of the enemy units:
6 on level I
8 on level II
10 on level III
12 on level IV
13 on level V

Once reduced below 10 strength the AI can never repair to >10 strength however. So in essence higher difficulty levels "add more units", but without actualy increasing the unit density (that would make outflanking etc harder if not impossible to achieve).