Morale of your unit is easily decreased. Being away from home, lack of pay, and losing a battle can all cause morale to plummet. So what is one to do to help raise morale? Entertain them of course!
But don't think it's that simple. The troops aren't going to be very entertained at one dilapidated pub sitting at a dusty crossroad. Real entertainment is only found in large cities. And your troops will certainly have a preference. Some units will want to go dancing. Others will hate dancing, and will prefer less savoury activities.
Of course, nothing in life is free. You're going to pay in order to entertain your troops. The more you're willing to pay, the longer the party will last, and the more your troops will enjoy it. Once they're having fun, it is going to be very difficult to get the troops to do anything else for the rest of the day.
You may also find that entertainment increases your troops' cohesion, though despite this, it's not possible to select the entertainment option if your troops' morale is already 100%. Entertainment is designed to improve morale - cohesion increases are more of a side-effect.