What are flesh and blood for?  Is it explained somewhere in-game?  Seems like I would have run into a use for them by now.

Blood anf flesh are very special resources. They are used when one of your units turns into vampire or werebeast and needs to consume its weekly portion of blood or flesh.

Blood is also used for medicine creation once you have rescued the healer-priest.

I have a hard time keeping track of what quests I have not tried.