If I remember correctly, morale affects the base unit stats (attack & defense) and its chance of critical hit. Because its effect is by percentage, the strong the unit is, the greater effect will morale have. I strongly recommend not ignoring morale, it has significant impact, especially when critical hits are concerned; however at the beginning of the game it's not that important.
Morale is one of the reasons undead and demon units typically get low usage in the late game, as they screw with everything else's morale.
Tips on canceling the effect:
- There's a skill which can remove the morale penalty from mixing different units. It's pretty high up the mind skill tree (the green tree), but it is available for everyone. Recommended if you plan on incorporating undead or demon units later on.
- There are items that add morale to specific types of units later on. They are useful by themselves, and especially useful for mitigating morale penalties.
- Some wives give morale bonus to specific unit types; for example the elven wife gives a bonus to elves, the dwarven wife to dwarves, and so on.
Finally, This gamefaq entry shows a short list of what unit affect other unit(s) morale.
EDIT: morale has a range between -3 and +3, with 0 being the default. I don't remember the precise effect of each point, I think it's ±10% to base attack, defense and chance of critical strike.