As far as I can tell, to use the formation controls...
You talk to a companion character, tell them you want to make them a "battle" leader.
Then go to camp and actions and you can change the people in the "battles" as well as view the controls for them via new menu options.
In battle you can use said controls to select different groups and assign them orders.
Though it gets a bit complex and confusing at times especially since everything is done via the announcement list on the left, so everything becomes and mangle of orders, casualties and morale announcements. And then the list will disappear a lot of the time... very irritatingly so so that you have no idea who's doing what or if they're even alive.
The stupidest feature of the morale system is that informs you of the morale of dead troops as well. I don't care if a corpse has the morale of 0.
Text needs to be smaller or some announcements need to be cut. In my opinion there shouldn't be an announcement of the enemies morale, how the hell would you know what they're feeling? But you could see them backing away and legging it.
Also the default battle positions of your troops are poor, people default to being spread out from each other yet all groups clumped at the same time.
