BARAAAAAAAAAAAAAA!!!!!!!!!!!!!!!!!

While this idea might be historically accurate it presents a number of problems. As Scoutdog mentioned backstory for units would be to time consuming, from a development standpoint, to be in the game. While Krouv makes a good point that you could create your own backstory, honestly would you? I mean you have 1000 plus units per game and who knows how many games your going to be playing it a week / month / year. It seems impractical for the majority of players.

From a game play stand point what is to stop a person from saving and reloading until they get the unit type they want?

I think it will be enough for me to name and create backstory for my own hero units. And if the Devs put in several hundred pre-created heros with great backstory who may or may not appear in any given game I would be even more excited.

I think this is a very good idea.

Perhaps the stats could start hidden, but the owner finds them out after the unit is engaged in battle.  The adversary might also find them out after several engagements.  If the unit breaks and runs, stats go down.  If they win, they improve.

The backstory could be optional, written by the player if desired.

It would be nice if the unit could be named, and renamed.  This allows the player to award decorationis to units who deserve them.  Back in PanzerGeneral days, and in HoI, I would award a '*' after the unit name for a hard fought battle or a '+' if they won a critical fight I really expected them to lose.  If a unit took an enemy city I would rename the unit after that city or make them a 'Guards' unit.  Each player could customize as they wish.

Regarding the variable stats, if the unit comes from a town with a long history of raising units in the local barracks then we would expect higher stats.  If it is raised in a mountain city then it will probably perform better in rough terrain.  If raised in a swampy fishing area then it will be more adept at crossing rivers and building bridges.  If it is raised in a city next to a magic node then it may have some magic defense inherent.  Again, there are limitless possibilities.

Very good idea, OP!

Just to answer a few points, I did not intend to suggest that the developers write the story for each of these units. That's dull in the extreme, and generally ignored by most folks. X-Com's style of generating units is a little closer to what I mean than, say, the prewritten histories of heroes in Romance of the Three Kingdoms (by Konami).

I also want to emphasize the importance of traits as seen in the Total War games, where an idle unit might pick up the drunkard trait, and a unit that executes prisoners might gain the bloody trait. In essence, procedurally generated story, sans the crappy writing of the computer. This adds personality to units, as well as benefits and penalties, without materially affecting the utility of the base unit itself. 

An important element of this sort of story is the where, who, and how. A log of where the unit was created and the major battles it fought in would be key to keeping track of how it performed over time. An easily identified commander would add to that, especially if that commander had other units attached to him, or, even better, developed friendships and enmities, a family, and grew old and died. Nothing too significant, just basic family tracking along the lines of Crusader Kings or EU:Rome. Awardable titles would also be kind of neat. In essence, make it so that each wee unit is a mini-character with mild rpg elements.

I will say that I conceive of this game as played with between four and six cities -- any more than that would remove a great deal of the flavor and reduce it to the unit spam so prevalent in Civclones, where a big stack of the strongest units is sufficient to overrun any old place.

I really do want to reiterate that fantasy style games and stories are at their best when they focus on the interaction of interesting characters, and at their worst when they attempt to create a complex political drama. It's the difference between something like Firefly and Serenity, or A New Hope and The Phantom Menace. Fantasy, whether with laser guns or fireballs, is character driven. Lose that, and you may as well be playing a Tom Clancy game in terms of emotional appeal.

I like this idea (although I don't think traits like 'drunkard' are a good fit for, say, a unit of 150 longbowmen). Terrain-based bonuses (eg 'forester', 'desert combat', for time spent in those two types of areas) and situation-specific bonuses (eg 'ambusher', 'defender') seem especially appropriate.

To me it doesn't really make sense for a unit of swordsmen to gain 'magic' and 'wisdom', because swordsmen (presumably) can't cast spells anyways. Also, in 'real life', the most likely course of response to a unit growing old was to swap out the individual members of that unit who were becoming old, hence preserving the overall state of the unit and so affecting a negative net change in terms of age-related effects. You could probably simulate this and other things with experience decay, but some people (myself included) would find that frustrating.