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Yeah, units get weaker as they take damage.
E.g. if a unit consists of 6 models and has 60 hp, every single model has 10 hp. If the unit goes to 40 hp, two models die and the damage of the unit is reduced by 2/6=33.3%.
This radically changes how you approach battles, because in past AoW games I'd tend to leave healing my units until the end of my turn after they'd all engaged so I could see who really needs it. But now it's almost always worth healing them before they attack anyone, because the damage benefits are significant.
Because a unit with 2 models only loses damage when it hits 50% health. While a unit with 4 models starts losing 25% damage at 75% health.
Edit: Also I didn't read, yeah it's for the unit not the army. If you want more in your battles you need 3 armies of 6 standing near each other so you get 18 total.