Physical combat is a lot like magic combat. They both happen in the combat window and involve order of combat. However physical combat has two distinct phases: Missile and Melee. Missile being weapons like thrown javelins, bows and arrows, slings and such. Melee involving weapons like swords, axes, maces and such.
First missile combat occurs. In the combat window, arrange your units in the order you would like to have them and hit Do Battle. The strategy behind rearranging for missile combat is simple - missile defense vs cost.
Then melee combat occurs and you repeat the sequence, rearrange and Do Battle. The picture on the left shows the combat window set to rearrange for melee combat. I have my units arranged this way for a good reason. When a major unit is involved in combat, the attack values of the top three units are tripled due to the honor of being chosen by this great individual to lead the combat. So when you have a Major Unit in your attacking stack, it's usually a good idea to put your best units at the top. If you're the defender, you usually just put units you're willing to loose at the top. If the attackers kill all the defenders in melee combat, then all the attackers advance into that square. Also any Major Unit involved may get some experience points depending on the size of the battle.