Combat is an essential part of the game, but unfolding the storyline is still more important. There are important choke points that can only be accessed if you defeat some enemies, let it be some common mob or an important boss. Combat is turn-based using directives. For each member of the team you can adjust these according to what you would like them to do in the next round. The AI tries to use the best optioin available based on the particular person's skills.
You can either automate the rounds or wait for the directive panel to pop up at the end of each round. This is the point where you you can adjust your directives or invoke the inventory to equip/unequip an item, use a potion or something similar. When it's set to automatic, you can't do these. There are other options on the panel, namely FLEE, PARLEY and BERSERK. All of them can be very useful in situations. You can reload your game between rounds.
Combat is difficult. Don't go into battle without good tools of war, proper skill and buffs. Combat heavily relies on having been buffed either by using potions, food and whatnot or buying some from vendors. For more information, please refer to the document attached to the game and also the combat section of the in-game help. There several small functions that can make your life easier. If the particular combat situation is difficult, run away.