Here is an awesome post I found on the bioware forums about the tactics system, I did not write this just sharing.

Since there are many people having trouble comprehending tactics, I typed upa scenario that demonstrates how they work. Let me know if this is accurate or how I might improve this:


First, understand that you don't do anything
with the tactics menu while in combat. It is a list fo rules that the
selected character will follow whenever they are in combat, so you
don't open it while in combat, you set it up before combat.
Imagine that it is a series of "If...then..." rules. Example, here are some tactic rules you might set up nfor a rogue:


1. IF my health drops below 50%, THEN drink the weakest health potion in our inventory.
2. IF I am surrounded by 3 or more enemies, THEN use my "Dual Weapon Sweep" attack.
3. IF the health of my enemy is greater than 90%, THEN use my "Dirty Fighting" stun attack..

Etc.

During
combat, the computer CONSTANTLY checks to see if any of the
IF conditions you set up for each chracter in their tactics window are
true. It starts with the condition on teh top of the list and goes
through them in order until it finds one that is true. When it finds
one that is true, it stops there and executes teh command you have
associated with that condition. There is no manual internevntion
needed by you and there is no noticible effect going on since the
compute does these checks (presumably) many times every second of
combat.

So, in the example of the the tactics for a rogue that I listed above, here are some scenarios that might play out:

(I use the term "rounds" to mean the passes taht the computer makes
through the tactics ruels. I do not mean to bring to mind the
turn-based games like NWN where you have rounds of play.)



ROUND 1

Lets assume we go into combat and I don't give my rogue any instructions other than she is free to move on her own.

Now
let's assume that she gets hit by a lightning bolt which drops her
health to 51% and at the same time she is surrounded by three
deadspawn. Two of which are at 100% health, but the other one is at 5%
health after having been it by an AOE on the way to get me. What
happens? Let's do what the computer does and find out.

Is the the condition for rule #1 true? No, my character is NOT below 50% health, so the computer moves on to rule number 2.

Is
the condition for rule number 2 true? Yes. She is surrounded by at
least 3 enemies. Since this rule is true, the computer stops right
there and makes my rogue execute the command I associated with the rule
that is true, which, in this case, is "use my Dual Weapon Sweep
attack." So my rogue uses that skill.

Does the computer ever
get to rule number three on this split second pass through the rules?
No. It stopped at rule 2 because it was true and it executed the rule
two instructions. Now the computer starts over and does another check
as soon as I am done with me Dual Weapon Sweep move (which is over in a
split second anyway).

ROUND 2
Let's assume that during the
time when I did my Dual Weapon Sweep move, I got hit by one of the
enemies and I am now at 50% health and that I hit all three of my
enemies. One of them died and the other two are at 92% health now.
(Got to love Dual Weapon Sweep!) What does the computer do now? It
starts the check again.

Is rule #1 true? No. I am still not less than 50% health. I am exacvtly 50% health, so the computer moves on.

Is rule #2 true? No. Now I am not surrounded by three or more enemies. I have two enemies around me. The computer moves on.

Is
rule #3 true? Yes! The enemy I have targeted has 90% or more health.
The computer stops here and executes the instructions I gave for rule
#3 which is to use my Dirty Fighting move. Then, it starts the check
ALL over again. (You can see how this happens many times each second!)

ROUND 3
Lets
assume that while I was executing my Dirty Fighting move, I hit the
target and stunned him and he is now at 87% health, but I got hit so
my health is at 40%. The computer starts the checks again fromt he top.

Is
rule #1 true? Yes! I am at less than 50% health. The computer stops
right there and executes the instructions I gave for rule #1 which is
to use the weakest healing poition I have. My rogue drinks teh potiona
nd is brought back up to 100% health and the computer does what?
Starts checking the rules all over again!

Is rule #1 true? No I am at 100% health. The computer moves on.

Is rule #2 true? No. I am not surrounded by 3 or more enemies. The computer moves on.

Is rule #3 true? No. My target is at 87% health. The computer moves on.

Wait.
that's the end of my ruels! What does the computer do? It let's me do
my normal melee attack and it starts at the top of the rule list again
and checks to see if any rules are true. This goes on many times each
second for every character in yoru party as long as theya re fighting.


Hope this helps!