I think what Starlife effectively means is that if the group is smaller, the same cost is being spread over a smaller number of people, making each individual more powerful. They would have better equipment, abilities etc then a group of 100 men of the same type (and cost).
I think that's it anyway.
Nice idea though Starlife, I like the unit customisation idea particularly. Not sure about the mana reinvestment thing though, simply because the hurdles you have to jump essentially confine you to doing nothing for turns on end, players that choose to do this will not be contributing to interesting updates, and because of the high rates its quite an attractive thing to do. You don't want everyone sitting there for 3 turns doing f all waiting for their mana levels to increase do you?