Something seems weird about the formation esp given that the order of the character in the chain list and the leader (person you are controlling) has more impact on the actual formation than the formation you select. While I had arranged the four members as two in front and two in back frequently they came out in odd arrangement dependent on who actually entered combat first.
While there is some logic to this I would prefer that the actual combat order respect the formation and not who is leading or the chain order.