[TVZ222]

By building/upgrading the church/monastery/cathedral, and by having a bishop, morale is increased. What does that do, exactly?

[JRRayder]

Morale gives your troops in the city itself a combat advantage. The higher the morale the better the troops fight - the fewer losses they take and the more enemy they kill. This is primarily a defensive advantage but I have always thought at least that it gave my troops a bit of an edge just in general attack as well.