As I understand it, characters/units which are knocked down to 0 health in battle will be "unconscious" and not available to be used in subsequent battles unless the caravan camps to allow them to recover. The team (if I understand correctly) wants you to need to be careful in how you conduct your battles and provide a motivation to conserve your units' health.
If you play poorly and several of your units are severely damaged, you won't be able to use them for subsequent battles without halting the caravan. If your caravan wastes time, things become more rough, and you may miss important plot-things. If you try to press on with a crippled army, you'll be less likely to survive the next encounter.
But they don't want to punish the player in such a way as to force perpetual re-loads of previous saves. That's the big flaw with games like Fire Emblem. You lose a well-liked character, replay the battle, lose him (or a different one) re-load, replay, rinse, repeat. It becomes tedious and awful.
Their goal for TBS is to keep you playing the same save file, and just try to figure out how to press on despite having some casualties. After all, those convalescing units will become available again a little while later.