Source: Warhammer Fantasy: 6th Edition

Appendix Two - Preparing for Battle
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It is quite possible to play a game of Warhammer with an army that consists of every model you own, regardless of race or quantity! However, as I'm sure will be immediately apparent, such a game wouldn't be very satisfying and is unlikely to be very fair. It would also be missing the point. Warhammer is about collecting an army of one of the races of the Warhammer world and bringing it to battle against an equally matched opponent.

In order to ensure that games are as fair as we can make them, every model is ascribed a points value which reflects its value in the game as closely as possible. Of course, some players will naturally tend to do better with certain types of troops, so those types may be more effective under their command.

Similarly, some types of troops will perform better in certain kinds of terrain or against specific opponents. For example, a huge, monstrous Dragon isn't going to be worried if it finds itself confronted by a horde of tiny Goblins because the Goblins are just too small and weedy to stand much chance of hurting it - in such a situation the Goblins are literally worth almost nothing!

Bearing all of this in mind, it is obviously impossible for points values to reflect the absolute value of every model in every circumstance. Instead, a model's points value is a useful compromise which should be viewed as representing its fighting ability in the circumstances of a typical battle.

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Next - Appendix Three - Warhammer Skirmish