Alignment is a characteristic of a town type and its associated heroes and creatures. Heroes and creatures have the same alignment as the towns they are associated with, not the towns in which they are hired. There are three town alignments in Heroes of Might and Magic III: good, evil and neutral.
Neutral creatures have no alignment, they do not count as troops from a neutral town, so they do not get the luck buff from Clover Fields, or morale buff from Angelic Alliance.
Alignment has almost no direct impact on the gameplay, and it is mostly used in the game storyline. In Restoration of Erathia the only things alignment affects are Morale and Altar of Sacrifice, which allows heroes with good alignment to sacrifice artifacts for experience, evil alignment heroes to sacrifice creatures and neutral alignment heroes to sacrifice either one of their choosing.
Shadow of Death 
expansion introduced magical terrains Clover Field, Holy Ground and Evil Fog, which affect luck or morale of the creatures of certain alignment.
Town alignment
| Town alignments in the army:
|
1 |
2 |
3 |
4 |
5-7
|
| Morale modifier:
|
+1 |
0 |
-1 |
-2 |
-3
|
- In terms of Morale deficits for having creatures of different alignments, each town is considered its own alignment (i.e. having Castle, Rampart and Tower troops will result in -1 morale) and Neutral creatures count as their own town.
Angelic Alliance allows a hero to have creatures from good and neutral towns without causing them to suffer from morale penalty. Bug: Conflux creatures do not affected (fixed in Horn of the Abyss) 
