Heroes 5.5 WarGame Edition - Tactical Edition.

It's unclear what "fantasy adjustment" means here – is it a mandatory addition of magic, miracle potions, or enchanted armor?

Perhaps it's some of these things, or all of them together.
Because in real life, your skills are more limited, and a person with a sword on a horse wouldn't be able to take down... let's say, a hippopotamus (I think that's a good equivalent to the gnomes' Godzilla). But a commander in Heroes of Might and Magic V can.
I'm talking about the original game as an illustration of this point; of course, you can balance your numbers very differently (and that's perfectly fine).