Hi all. My question is what changes do the difficulty changes make? Does it grant the AI gold and hitpoint bonuses? Or does it change the behavior of the AI?

In H. Gold it only changes the amount and frequency of raiders invading your territory and the respawn rate of your own recruits (so those of the AI are comparatively more).

Perhaps Rome has more variables like the amount of gold a mine produces or the amount of gold a cohort (or whatever is one "unit") costs. How about a difficulty system as in ANNO's maps? There you have a lot of variables and two-three options per variable. Additionally, every option has its own "difficulty points", which then determine the overall difficulty. Would make the game highly adaptable to your individual gaming style with only a few options...

I believe 3 things are affected:
-recruit respawn rate
-food growth rate
-raider frequency

I started a second Philip campaign at "Difficult" level after finishing my first one at "Normal" level.
The main differences I've come across are those already mentioned but also strong (a number of hoplites with a catapult) armies from some aggressive factions (like the Phocians) retaking back their cities after you capture them.
Also weathered some very strong raids (up to 7 or 8 spearmen or Thracian peltast brigades)from the Thracian factions after capturing Crenides and the nearby Athenian ports.

Illyrians are quieter as well. Had hardly any raids from them in the second campaign game but still getting a lot of Athenian raids.

I admit, it was a little surprising to see the enemies using catapaults.

I think the AI factions build catapults if there is a lack of ranged infantry in their troops and they have no other troop type available (e.g. Lacedaemonia/Peloponnesian League or a city with only 6-8 recruits).