Does it generate an SoW battle for every single encounter?
Only if both the sides accept to fight or the retreating one failed the check for retreating.
Depending from the campaign type the retreating AI move to the parent unit or call parent near her location, or nearest friend units can march to enemy location.
Do battles have a time limit set by the player? Thus in the case above the light cavalry could "skirmish" for a fixed period then the battle would end - if so how does the camapign count victory/loss in these conditions?
The battle generated is always one of the four types of sandbox battles. They have a variable max time limit, but they can terminate because of points or because the AI gives up because of losses (or the player gives up of course). It depends much of battle type generated.
Is there any penalty for a lost battle/advantage for a won battle other than casualties and presumably losing/holding the battlefield? Following on from that what does the camapign do to a beaten force? is it auto-retreated?
After a battle there's 1 hour campaign time where both the forces of battle cannot do nothing, after the loser is forced to retreat.
Is there any system of cavalry scouting and screening that gives the player or AI information on enemy locations and strengths other than counting flags when a battle is generated? Are enemy forces revealed on the camapign map as they get near your own? If so what info is given?
There's a range of autoscout when enemy is nearby, but you see only the name of force; the composition is shown only at the moment of battle decision.
How does ammunition supply and supplies/LoC work generally?
Is still simplified, troops recover morale,fatigue,wounded and ammo on different percentages resting in a town.