How does combat work?

First I assume you mean tactical combat. It would be a long post to tell you what all the buttons do, but the first ones you need are the start and pause buttons. Start is the solid arrow and pause is the solid square. Once you pause you then use the other buttons to give movement and targeting orders. Push the start button to resume, and repeat. Practice using the simulator that can be accessed through the ship creation menu. Hope this get's you started.

I too am working on figuring the combat system out. I have noticed that it’s hard to make your ships move and attack where you want them to. I believe this has something to do with the Fleet/TF structure. I think you might have to break up a TF to individual ships to give specific orders but I'm not sure.

At first I was lousy with the new combat system but now I have gotten used to it and am able to work it okay. I usually use single ships instead of fleets but do not have problems with either. Some tips:

1) Pause often
2) Use the range circles
3) Set movement orders farther away than you think. This will prevent ships from just sitting there. The ships cover space pretty quick and do not revert to uato move once you set a destination.
4) Set the time scale at 1/4 or 1/2 while you learn. Things will happen a lot slower.
5) Left click and drag allows you to select multiplke ships to issue movement or target orders for all of them at once.
6) Most important: Turn to a heading 90 degrees relative to the enemy right before the shooting starts. Turning is quite slow, if you wait it will be too late and you will get all shot up. Once the range circles cross I turn.

I am sure there are many others, but these helped me get up to speed on the system.

You can change the line "Space Combat Maximum Zoom Out Distance" in settings.txt to whatever you like (yes, even in the demo). However be warned that apparently there is no way to change the zooming speed, so zooming down from high takes a while...

Good tip. I've been looking to zoom out further. Do you have a reccomended setting for this? The default is 90. Do you know the range of valid values, and is bigger further zoom out?

I know that 500 works. However at that range, frigates or destroyers can barely be seen and fighters are downright invisible... I'd guess something like 200 would be good? I use 500 to test my modded extreme-range weaponry (you can edit weapon damage/range formulas in the demo, though nothing else in components.txt. Go figure.)

Thanks, I'll have to try it out.

200 appears to work really well.
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Interdum feror cupidine partium magnarum Europae vincendarum
Sometimes I get this urge to conquer large parts of Europe.