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Easy - Player units have bonuses over the AI units.
Normal - Player units receive only very light bonuses.
Hard - Player receives no bonus, and AI starts to get bonuses.
Very Hard - AI receives very strong bonuses to morale in addition to stats.
Legendary - Identical to VH but with new "battle realism" constraints on the player, such as reduced tooltip info on enemy units and inability to see enemy more than 600 meters away.
In the campaign or strategic side of the game, the higher difficulty corresponds to lower upkeep costs for AI units, and higher base income, which means the AI will be able to raise armies faster and maintain more armies for a given amount of provinces.
The higher the difficulty, the more aggressive the AI is towards your faction. From Normal onward, the player is identified as the biggest threat. On VH or Legendary, the AI will basically see the player as the faction that must be stopped at all costs, which means it is more likely to declare war and will invade the player's domains even if it means leaving itself vulnerable to other, AI controlled enemy clans.
Mile pro Libertate is correct. That's how the enemy AI works. There are mods to help balance it out if you are interested. I suggest looking through the workshop to see if you can find anything you like.
Sadly the additional 'challenge' does not make the game more interesting or fun, as 90% of the game becomes essentially useless as the only viable tactic in Legendary is build 5+ stacks of ashigaru, chain defend, then walk over undefended territory. If you like diplomacy, naval battles, fielding more than 2 samurai over the entire game, or anything past the 1st 2 rows of the tech tree, don't bother.
The biggest issue with harder difficulty is that none of the factions like to trade with you, and they will break alliances and agreements to fight you... Some AI will ask you to be an ally, but usually only if they are getting beat into the ground by other stronger factions... This can be good sometimes because then they will trade with you because you're allies, but once you start gaining more territories, your allies will turn against you.
I've had plenty of games where every faction is at war with me before I've hit the realm divide!