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And getting Spain on one side or the other does mean less headaches down the line - the UK usually looses Gibraltar if Spain goes Axis. Again, not absolutely necessary - my current game as Germany they're fighting for the Allies because the Republican forces won (the Allies at this point being a Communist faction) but it just means the British have a few hundred more fighters (which kept my nukes at bay for a limited time before I regained air superiority) and I had to sink a few more ships. Not nothing, but not huge, either.
Now, its not perfect - I'd like to be able to send air volunteers - which happened in the real world. And sometimes it isnt worth my time - I had a two division limit this game, and thought, why bother? Not sure the volunteer limit doesnt need tweaking. But, overall, its still a decent mechanism for levelling up your early game military.
It's effectively a way to train your unit and gain military and air exp. This can then be used to upgrade your divisions and your armor variants. It can also be used to upgrade your aircrafts engines and firepower with air exp.
This means that when the world war starts, your tank and air variants, although potentially being the same tech level as the allies, will be significantly better due to the upgraded variants.
I have played MP games where the germans have grinded spain until 1939 and then rolled into france with tanks with armor values of 88, practically unkillable without dedicated anti tank divisions and players who have grinded late tier anti tank tech.
this has gotten so bad, that now many hosts put a time limit on the spanish civil war, forcing the axis to end the war before a certain date and thus stop the grind.
It's not so much about what you get out of Franco, but about making defeating the Soviets easier.
Yeah the AI is pretty dumb. Always control your own supply lines as AI will leave you high and dry.