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GavGrub
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You're thinking of Spirits of Steel: A New Dawn, the sequel to Spirits of Steel.
Whether or not you have hundreds of divisions, you will still loose assuming you don't have enough factories to supply them.
Both suggestions are coming in the next update.
The AI trains troops and then doesn't immediately deploy them until you go to war. The idea behind having them have max army per population at the start of the game is so that you focus on infrastructure in the early game while you wait for your military to build up.
It's possible that you're having supply problems. Money is needed to attack, and if you run out, you will loose every battle. This scales with the number of divisions in battle. Try building more factories.
The biome you're fighting on can also add modifiers to attack / defense. Check to see if that's causing problems as well.
There's nothing I can really do about that unfortunately, because of the way regions are set up.
Here's the discord link: https://discord.gg/sTSfJWVpdH
The AI nations do not ignore manpower constraints, they just deploy more divisions when you declare war on them, as you can as well. Economy does matter, it's required to resupply divisions. Divisions will wait to go into a battle unless they are fully supplied, otherwise nothing will happen (as per why the units have movement lines but don't damage each other). You can refer to the tutorial for more details.
I do agree with you however that this is not communicated well outside of the tutorial, so I will work on improving that.