You make a new text file of the type '.dm'. You can find the commands from the 'Docs' folder, IIRC right. A short example of a very simple mod, given by PvK in the thread Pretenders Balance Mod.
#selectmonster -monsternumber-
#restrictedgod -nationnumber-
#end
All modding commands start with #. It seems first you select what unit you are going to mod, then choose the commands you wish to apply to it and then end the mod. Monster numbers can be found by pressing 'I' (shift + i) when looking at the unit description/ information screen.
You can edit units and their abilities, but only those that have been implemented. You cannot mod special abilities of nations like Mictlans inability to spread dominion without Blood Sacrifices or Ermor themes' way of killing people.
And you cannot add themes or add new units/commanders to a theme, only to the base nation like Broken Empire theme of Ermor. So if you want to make Mictlan mod in which they don't
have to make blood sacrifices you have to choose another nation that has normal dominion. Propably Abysia or Vanheim as those two can use Blood Sacrifice even though their dominion spreads without it.
Modding is not as elegant as in some other games, but I think Illwinter has created very nice and well-working modding system. Especially when one considers that they only added it after the players had shown that there was interest in them!