"Defense is lower than attack, so be sure to attack before attacked."

I read this describing goblins. I guess I don't understand the tactics as a noob. Any help?

It probably means that they are not meant to soak damage (like Dendroids and such), but merely to absorb retaliations from stronger units so your higher tier units can attack without retaliation.

Do units retaliate with the same attack strength that they would have if they initiated the attack? Thanks

By the same token, does a unit defend the same whether it is an initial attack or a retaliation? (Heavy stuff)

Assuming they all survived the attack, and without negative status effects, yes. See above.

If I don't like the hero choices available in a given week, are these my only options?

1) - wait till next week
2) - hire one, send them outside the castle, then dismiss them?

thanks for all the help!

Option 3 (not always applicable): find a neutral tavern somewhere on the map and check it every week for 2 more hero choices

To add a bit more information with regards to the initial question, when calculating damage done the attack value of the attacker (unit's attack plus hero's attack) and defense value of the defender (unit's defense plus hero's defense) are used in the calculation, and if there's a significant difference between these values it will have a major impact on the amount of damage done (you could send 100 goblins against 100 goblins, but if one hero has an attack and defense of 15, while the other has an attack and defense of 1, the battle will be incredibly one-sided). Once you get into the midgame or lategame hero attack and defense values will generally overwhelm individual unit attack and defense values, at least for tier 1-4 units. Also, with general tactics, it's pretty much always preferable to have your own unit get the first attack, since if an initial enemy attack wipes out half of your stack the counterattack is still going to only do half the damage that you would have done if you had attacked first with the full stack, regardless of attack and defense values.

basically, goblins have more attack than defense, so you want them to attack and try not to be attacked (i.e. if you can, use another higher defense unit to get the only retaliation an enemy unit gets, then use the goblins, although I don't see a 'wait' command in HoMM1, maybe I missed it, or it was introduced later in the series).
As an exception to the last post's general rule, sometimes you don't want to attack, for example, you may want to position a unit next to an enemy's ranged unit without attacking it, just position it there so the ranged unit has to use its much weaker melee attack (and sometimes you can position a unit, like a gargoyle, next to 2 or more ranged enemy units, forcing them all to attack your gargoyle)

HoMM3 was the first HoMM game with the "wait" command. The first two didn't have it.