Okay, this is rather long winded, but I just started this thread to share advice or strategies or whatever. Castles 2 is a little more subtle in that you just don't plow though it attacking everyone, (like Risk).
I remember this game being hard, and I remember beating it every now and then (100 billion years ago). It seems that I am maybe doing some things right, but I am also a bit confused. I want to share what ideas I have thought of, and get other's ideas.
* This is something I didn't know at first, and I bet a lot of people don't. If you got your score to 7 or up (I think), the pope would consider you "blessed". Whenever you or anyone else attacks a blessed enemy, your standing with the pope drops by 1 point. If you drop to 3 or lower (I think), you get excommunicated, which is rough. The pope seems less interested in non-blessed players. You can perform a Council action to learn who is and who isn't blessed.
Actually, I think I did attack someone non-blessed and my standing with the pope dropped anyways.
* Speaking of the pope, you can try bribing him with gold. Send a Merchant to him, then offer more gold than he receives (ie. Offer 2 gold and Receive 1). He often raises your standing with him by 1 point. Handy if you want to go on a slaughtering spree!
* Any territories adjacent to one of your castles (and the castle itself) do not run the risk of revolting, or so it has always seemed to me.
* Building a castle increases the production of whatever resource it's built on by 1. ie. If you have a land that produces food, then build a castle on it, that territory now produces 2 food. Getting 2 or more of the same type of land (2 golds, 2 iron, etc) with castles can get you *gasp* 4 of that resource or more per gathering. Especially useful for gold, which is most frequently used. Then you can trade with another lord for different material, or use the Black Market to trade 3 for 1 (note, Black Market often fails, taking your resources with no returns).
* The enemy (and you) are limited by the lands you have. If an opponent doesn't produce any of one resource, he is in trouble and can only trade for those goods. You can opt not to trade to keep them weakened. You might consider taking a land just to remove them from access to a resource, though I am not sure if it's a real good idea.
* Knight's horses can't climb walls! You'll need to build a siege engine (ie. catapult) to take down the walls. first.
* Attack the pope for your amusement :P (no, don't do that actually).

* Here's where I'm confused. When anybody is attacked, they only get to defend with about half their army, while the attacker gets their full army! I guess the theory is that your troops are spread out among all the territories? It kind of sucks, because I have territories being blocked by others, that don't NEED soldiers at all!
Anyway, it seems that you pretty much lose if you're attacked, unless you have double the army of the attacker. That's kind of... probably not going to happen that often. Even castles don't seem to make much a difference as far as being more defensible. IMHO, defenders should always have the advantage. Thoughts?
* Which reminds me, why build castles with what is supposedly elaborate defenses, like the castle with the 3 front gates. Supposedly the attacker has to go through all 3 before gaining access to the inside of the castle. Well, since soldiers walk directly to the castle and climb the walls from anywhere, what's the point?
* My Happiness seems to be all over the place! I check the diplomacy screen and see it at 2! How? Well, attacking anybody seems to sometimes drop their Happiness. I'm guessing having the pope mad at you drops it. Failed attacks or defenses might drop it. Otherwise I don't know how it works.

Anyways, that's my 2 cents. I probably haven't played this since it came out on disk! Man, that makes me old! Anyway, have fun!

I agree that this game is quite different from other games, and I believe that one big reason for this is because the army size of the defender is halved. If you can prevent your neighbors from attacking through diplomacy or otherwise (not sure what), when you attack and eliminate a neighbor (preferably on a non-castled land square), they need much time to build up another army. So basically if you keep pushing your army forward and bribe the pope and other neighbors, one neighbor can go down very quickly. I agree that, when you are attacked, you should probably run away. In a castle however, you can reduce the size of the attacker army before running away.

Castles aren't super effective in terms of defense (because your army is halved), but it does slow the enemy down and it does increase the chance to reduce the army size of the attacker. When defending a castle, I think many archers makes a big difference. It's probably good to have the knights and soldiers defend the flag, and not run off too. The knights can't climb, but they can actually open gates. Therefore a castle with many gates will slow the knights down. Many walls will slow soldiers and archers down as they'll have more walls to climb.

Not completely sure how happiness works either. It seems to go down with time, but I know it always goes down 1 when you use/build police which is useful to decrease the neighbor's chance of doing sabotage. Sometimes happiness will go up when you build a castle and it definitely goes down when you attack the pope.

It is, but once you've got the hang of it, playing in anything other than "Impossible" is boring. I remember the first time I won in Impossible... I was so happy :-) If your main enemy is blessed, you will have to spend a lot of gold in diplomacy with the Pope, but eventually (especially if you are blessed too) your enemies will lose their blessed status since they don't have enough resources to bribe the Pope.
I believe (can't remember exactly) that besides the Concil, you are informed if a player is blessed when the game asks for confirmation of an attack command. I think you are mixing diplomacy and merchants. Diplomacy is the one that lets you choose how far up or down to go in the negotiations (i.e. ask for 2 gold from them, but if they don't accept go down step by step to giving 1 to them), while merchants allow you to trade any of the resources (i,e, give another player gold in exchange for iron), having the option to haggle or to grovel at the negotiation. Anyone going to play the game now: You've got to RTM (that GOG is kind enough to provide). Castles of 100 points or more will stop rebellions (in that land and the adjacent ones), while it is only necesary to have a castle of 50 points to double production. In that respect, I think I remember the manual being just incorrect in one aspect: It says the castle has to be OF 100/50 points, when in fact it must be of MORE than 100/50. 101 and 51 respectively will do the trick.

As for the black market, you can decrease the chances of being cheated by policing the realm. In fact I think I have never been cheated while patrolling, so if there actually is still a chance of being cheated, it becomes a very small one. When playing in harder difficulties, one way or the other they get the resources. And they will use them properly... ruthless little buggers. They can't climb, but they can break down castle doors. If you don't have siege machinery, but have knights, just use the hold/attack/destroy commands (I think they are called that) to synchronize the units' movements. For amusement... definetly do. If you are good enough at resource management and combat, you can win by complete conquest, including the Pope territories, and he has no other choice than to crown you. Great fun >:-) Firstly, game desing choice. It plays as a board game, and the half-defenses choice was a great one. Being able to destroy an enemy that is reluctant to attack you in 2 or 3 battles, even if they had an army 3 or 4 times larger than yours makes the game much more interesting. "The best defense is a good attack" to the max.

Secondly, the armies in the Middle ages were not a professional force. Professional soldiers were a small percentage of the force, most of them being employed as guards in cities and castles, which means they cannot be mobilized completely each time there is a battle to be fought, and the other "professional" fighters were the knights, which were not in fact professional fighters but busy noblemen with other things to do than being in the borders of the territories waiting for the enemy to appear. The rest of the force were peasants that needed to be taken from the lands they were working on.

All that means that, for a feudal society, having a large permanent defensive army was not a good idea at all, while raising a temporary large attacking army was much easier.

And as for castles defense: It could have been implemented in a better way, but they do make the defense easier. Still, it is just a small edge that permits a marginally weaker defender make the attacker flee, when in an open field battle the defender would have been defeated. Knights (see above). Doors are much more easily penetrated by knights (and siege machinery), than walls by infantry (or siege machinery). Losing batlles, policing the realm and, I believe you are right, angering the Pope drops happiness. There might be other triggers, but I don't remember them, nor did I pay that much attention to them. Keeping happiness high is both a good idea and not hard to accomplish. You should replay it. I played it back when it came out and then around 10 years later, it was MORE fun than before. :-D

Manually... yes, I'm a total freak. :D Oh, I play it "stripped down". You can disable the movies when you start a new game (and I think also at options during the game).

Sort of. You can disable 'speech' which stops the FMVs from playing during diplomacy but it won't stop the videos when messengers arrive, or when you attack someone.

Those little videos were in the original floppy version, that's why they are not disabled by the options.