Encumbrance is how physically taxing activity is for a unit. It doesn't apply to advancing in battle; it only applies to Melee Attacks and Spellcasting. After a unit finishes a melee attack, their Melee Encumbrance is added to their total accrued Fatigue. Melee Encumbrance is the Encumbrance value on the stat sheet.

Every unit has a Base Encumbrance, which is then added to by the Encumbrance value of their Armor and Shields to determine their Melee Encumbrance; if they're Mounted, however, the Encumbrance added by their Armor and Shields is halved (and then rounded up). This only applies to Melee Encumbrance. The mount itself then shoulders some Encumbrance while ridden.

Spellcasting Encumbrance is a different value, usually. This is the base Fatigue accrued from casting a spell, fatigue which cannot be diminished by overcasting the spell with higher levels of Magic. Spellcasting Encumbrance takes the Base Encumbrance, and then adds twice their Armor and Shield Encumbrance, with no discount from riding something.

If a unit somehow has zero Base Encumbrance, then their Melee Encumbrance will always be zero, but their Spellcasting Encumbrance will still change with equipment.

Most humans have a Base Encumbrance of 3. Mortals of extreme energy or endurance might have 2, however, while cold-blooded beings tend to have 4 at base. Demons typically have 1 Base Encumbrance, while Undead and Inanimates typically have zero.