Early naval combat is still a tad dull, in my view. (I'll tell it like I see it!) However, we did what we could within the limits of not being allowed to add more unit types there.
There is a small bonus for defending in Coastal waters. Keeping in mind what I just said about how much impact even small advantages can have -- this tends to make warfare with galleys a chancy thing to be doing. He who attacks is going to lose most of the time, at least one-to-one with unhurt units.
The "15-fer" trade deal I mentioned, summer 2002. [Final map]
Five techs from the middle ages and ten from the industrial era. I won this game by Diplomacy in 750AD! On Deity! This was one of the early R[ealms] B[eyond] Civ tourney games, and a month or two later, the last patch for CivIII came out, in which Soren fixed the unbalanced tech pace on higher difficulty.
You can't duplicate the 750AD diplomatic win on today's versions of CivIII. Not without modding!
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You can start to affect this once you can get some promotions going. That -is- possible to do in the middle game with certain Civics that give experience to units when they start. Even 2XP can let you choose Combat I, Drill I, or Flanking I, and there is some difference to each. Early game naval action is more a function of transport than combat. The water maps, especially Archipelago, place critical importance on naval exploration and transport. In the age of sail, with Caravels and Galleons, and perhaps Frigates, things start to liven up a bit. Just last night, I was playing a One City Challenge game for fun, and I got in to a situation where I had one Galleon vs two enemy Galleys.
My unit was Str[ength] 4, and theirs were Str[ength] 2. I won the first combat easily, but was down to 2.5 Str[ength]. The odds still favored me when their second galley attacked, but the dice intervened that time and my Galleon was sunk! In more cases than not, my galleon would have killed both ships, but it's possible for two older, weaker ships to beat a single, stronger one. Now once we get to the late game, things improve a lot. You can build Drydock improvements that are akin to "naval barracks", starting your units out with some experience. If you combine that with at least one Civic or Wonder that adds experience, your ships can start with two promotions. That's a much bigger deal in terms of tactical options.
There are also more unit types: Destroyers, Subs, Battleships, Carriers, Transports, plus any obsolete ships still wandering around. Fighters on board the Carriers are a very big deal. One of my priorities in balancing the modern era units was to ensure that Carriers play their proper role! They are kings of the sea (in the real world) since the start of World War II. Yet the carrier, in real life, is actually a carrier group: numerous escorts to protect the mother ship. CivIV naval combat reflects this. I actually build and rely on modern navies in every game on an oceanic map. They matter now, baby! Neglect your navy at your own risk!
My favorite move, which I have dubbed "The Sirian Doctrine", is to swoop in with a naval task force large enough to bombard a city's defense rating all the way to zero on one turn. "Blitzkrieg by sea". If the target civ lacks a competitive navy of its own, there is -nothing- they can do to stop me. Without city defense, their advantage as defender goes away. I can then hit their city with land-based units or even with Marines and Tanks right off my transports. The Sirian Doctrine is what persuaded Soren to upgrade the naval AI. Once he saw navies chewing up his AI baby on maps like Pangaea... Well, the priority on the naval AI went up considerably!
Two tests ago, the AI brought a surprise naval invasion against me on a map where I expected them to come by land. I was underguarded along the shore and I lost a key city! That was an Emperor game, and my mistake was fatal. I lost that game! Fans should not expect miracles from the CivIV AI... I don't want to overhype it. However, navy now counts, and in modern times that revolves around the carrier group. As for the skies... If you lack for oil, you are in serious danger. It's that simple.
Air power is the only type of combat left in the game (other than nuclear weapons, actually) where you can strike at your enemy at no risk to yourself. There is no lethal air bombardment, but air support is absolutely devastating. (Again, keep in mind that even small shifts in advantage or disadvantage can now be decisive!) If you can use airstrikes against an enemy who has no air defense, you can erase them from the battlefield. You wound their units at no risk to your planes, and then your unhurt units are almost sure to kill off their wounded ones -- and gain experience!
Air-to-air combat, or ground units that can intercept, are the only way to fend off airstrikes. Air raid shelters in cities can put the brakes on the ability of air units to damage city defenders, though. There are also other ways to "buy time" while you try to catch up in tech or obtain your own source of Oil. All in all, it should be a lot more fun than the late game in any previous Civ title. The attention given to naval and air power is a big part of that. This includes the AI! Don't underestimate this AI. It does have weaknesses, but now it also has significant strength.