Troops are an essential statistic according to your heroes. They act as your hero's health level and are the only stat that can be slightly boosted by any item type, although are mainly supplied by Mounts and Cloaks.
In battle they are displayed as a red bar on each hero's interface (when highlighted).
Troops are also increase by Command (see: Stats).
The lower is the % of your heroes troops, the worse they fight: damage done is reduced and damage received can increase, mages rate decrease too.
The total quantity of troops doesn't change the damage done/received, those are affected only be the % of your health.