1) The two Nazgul move forward and the Dunedain charges. Originally two of them were going to attack, but the one near the yellow bush failed his courage roll. Nazgul cause terror, meaning that checks are required by all models trying to charge them. Another Dunedain has moved up next to the one which failed the check. In the combat phase the Dunedain loses to the Nazgul but is saved by spending a fate point (the picture is incorrectly annotated to show he was killed. Whoops.).
My notes are a bit unclear about what was happening in the lower right corner of the picture. But I believe that one Dunedain was killed by the lone Nazgul and another one failed his courage check to charge.
One thing that is good about this system, but which I was actually unsure about at the start, is that combat between two opponents is decided by a simple dice off, with ties being decided by whoever has the higher fight value. At first I thought this was a bit simple and random, but after playing a few games it seems to me that it has much merit as more long winded combat systems. There is little different effect to the '4+ to hit' rolls which are often part of Warhammer and essentially a 50% chance of hitting. It saves on having to look up target rolls to hit and means combat has a more simultaneous feel. The dynamic nature of the combat is increased by having the loser move back 1", which in more massed combat give a good 'ebb and flow' feel.
Within this system, heroes with multiple attacks have a suitable advantage (usually rolling 2 or 3 dice against a lone enemy's 1) but still need to be careful they are not overwhelmed by sheer numbers.
Finally, while more of a skirmish game, it still rewards grouping together figures into units as it makes individuals less likely to be engaged 2-1. Without going into all the detail now, the LoTR system is actually a lot deeper than it might appear on the surface.