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Players, and even computer-controlled enemies, will be able to create formations that will increase the participants damage output and defense rating, as well as giving special types of attacks. A formation will have a leader who can designate spots in the formation for players, and the players have to stand at the specific spot for the formation to reach its maximum potential.
Formation combat will naturally be very useful in PvP battles, but will also play a vital role in PvE. You can break out of a formation at any time should you wish, but being inside one will improve your chances of winning. Many formations work in an almost rock-paper-scissor kind of way. For instance if you have a formation of horse riders thundering down on you, a good pike formation may do the trick in breaking them up.