1 caravan per city.  you just send it to another city and it will build a road between the two that provides a food bonus based on distance between the cities.  the roads can be used by units to decrease move speed between cities.  note that overly complex routes do not seem to work (e.g. if the caravan has to make a lot of sharp turns to go around bodies of water.)

also: caravans are food for monsters.  they travel back and forth between cities automaticly once the route is established and are constantly devoured.  its really annoying.

there is also something about the caravan upgrading roads after a certain number of trips, but i don't know what that is all about because I never care enough to replace them when they die.

There should always be a low level hero with a mounted troop patrolling any roads through woodlands.  Great source of xp and gold.

You can't join hero to caravan making a group, just like every other unit does?

I just hate when caravans destroy my gold mines. What kind of merchants are these?! They swooped in and murdered all my miners!

I want to upgrade my caravans with enchanted lightning cannons please.

Seriously though, you should be able to attach a caravan guard to them.

We are not suggesting they can attack, but I want to be able to assign troops to guard it.  Defensive, not offensive.

Can you ever build more than one caravan?

Everywhere I read it says one per city, but in my games I have buildmore than one per city sometimes,

But I don't know what to do to build more....

 Or is it just a bug when you're able to build more?

It is possible, it is sort of what I am doing.  I don't think that much micro is fun.

On the tactical screen I would have one squad of archers and 1 squad of swordsman for the guarded caravan.  The caravan could still be on the screen and get destroyed.  The troops assigned to the caravan should only be able to defend the caravan if attacked.

I don't think the caravan unit itself should have an attack and defense.

I still don't see why a caravan shouldn't have an attack and defense stats.

In civilization for example, non combat units like the transport still had a decent defense value. In game terms it meant that the unit could not initiate an attack, but could defend itself and even kill an enemy if attacked.

Translated to Elemental combat rules, it is the same as having both attack an defense, but still being restricted from attacking someone (or at least, an inability to change route after it is set).

In addition to that, when I look at the caravan as a unit, it looks like every other unit but with something that is called "a merchant kit", that adds the benefits and restrictions of the caravan.

So why make extra special rules for caravan? why not simply make it like any other unit except for a restriction for a single unit and the number per city limit?

This makes things simpler. You want attack and defense stats? just add them, but be aware that it will increase your cost, training time and upkeep of the caravan.

The food for mobs is a GOOD THING[tm] imho... It allows you to build another caravan and send it to other/different cities to build a new road!  More roads = less troops needed to defend as the transit system improves!

The longer the route the more FOOD is grown and harvest during the transit time and delivered at each end of each one way trip, actually its a % bonus added every turn to the cities at each endpoint of each segment.   Really wonder ful for cities with 1-2 fertile lands, allows them to feed the nation!