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Any creature capable of combat (including intelligent beings such as men or gobwins as well as creatures such as gwiffons or spidews) is a "unit".
The overlord of a city sets production orders for units, allocating funds and specifying the desired unit types. After a certain number of turns (depending on the unit type; in general, more powerful ones take longer), the desired unit pops into existence as a full-formed adult, with basic skills and knowledge already in place.
Units can "level up" and improve their abilities as a result of victory in combat.
(NOTE: Many of the entries will contain major spoilers for the story.)