I too am curious about what power level does. As for chapter 3, you carry the gold you earned in chapter 2. It was a bit hard for the first few turns, but since I started with over 200 gold I was able to simply churn out enough units to even the tide. It is a welcoming jump in difficulty though. As for the race relations, it is easier you always sided with the majority (that can raise them quick but you can get some iffy bonuses), or more likely casual has some effect on relations. I usually end my games with someone as low as 25% on normal.