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Outside of being there for the taking, what functions do the other countries have? Will France attack Germany, ally with them, join the Allies, or even Japan. What I am basically asking is are the countries just stepping stones? Is there any inter-action among them.

Um... France is a player country, but if Germany does it right it won't last long enough for the Western Allies player to use it.

The countries are basicly independent, but some zones are connected. If you attack the Azores for instance, the spanish will declare war on you. Mostly the countries are just there to weigh cost benefit ratios of attacking neutral lands. Like you can attack turkey to connect the suez to russia, or you can string a line of transport ships, or just not connect to the suez at all.

Every country starts as one of the following:

a) part of the European Axis (Germany, Italy, plus satellites)
b) Japan
c) part of Western Allies, the "WA" (Britain, USA, France, Belgium, Brazil, etc)
d) China
e) USSR
f) neutral (many nationalities)

a-b are always allied in a fight against c-e. There is no "picking sides" possible for these.

The neutrals do nothing, but if they are attacked they will join the other side. If Axis attacks a neutral, usually they join WA but some rare exceptions will join USSR.

Political situations are simplified by having "politically frozen" powers and map zones. In general, units in such zones cannot cannot move, but factories can produce. There are trigger events that unfreeze these zones, such as reaching a certain date or a certain territory being taken by the opposing side. E.g. Germany attacking USSR will unfreeze 2/3 of the USSR (the far east is still frozen, so that the USSR cannot attack Japan).

That's a quick summary, but you have to read the rules in detail to understand how it impacts strategy, because it is extremely important that you know what activities will awaken your enemies against you.

"you know what activities will awaken your enemies against you."

For a quick explaination on this read the "Trigger list" top sticky.