Judging by these lines, it only prevents Dwarves from fleeing from the main hero.
To prevent them from fleeing from everyone, you can do this:

P.S.
Oops... Sorry, I made a mistake - this battle is one of those rare exceptions where I didn't let the hero flee - I didn't destroy his ballista, and he played it out to the end.

Unfortunately, I don't have replays of the fleeing, I forgot to make them, but I promise to fix that - I'll make them later and upload them, I just need to find a suitable save.

P.S.S.
Well, I found a save - I quickly put together battles with the orphan Hasse (Inga) (hasya2.sav) and with Rolf (Rolf.sav), they took turns storming this Castle.
IMHO - the battles didn't turn out very well - the orphan Hasse fled almost immediately, not giving me a chance to gloat over the dragons, but she did it without any losses on her side, and Rolf gave up right after his catapult was destroyed, he didn't even wait for me to take out his archers.

P.S.S.S. I also restored the battle with the one-eyed hero (odnoglaz.sav), but this time he left himself not Tanners, but a bunch of Mountain Guards, but he fled almost immediately, just like the first time.