You can find more about it here:
The first thing we see in the image below are the two combat units involved in this attack. Picture if you will it is May 1940 and we have the 86th German Infantry Division attacking across a river trying to force back the 3rd Belgian Infantry Division (grey vs. green).
The first thing you must do is identify the attacker and the defender. There are certain rules for how many times a hex can be attacked and such and you should consult the 4.2 OCS rulebook for more information (Section 9 is combat).
The next thing you must do is put your combat units into supply. This can be thrown to you from an HQ or you can draw supply from a supply dump. In this case both Divisions will be drawing combat supply from a supply dump. All supplies travel to a location via truck movement points. Drawing has a range of 5 hexes. In the picture below you can see that each unit is within 5 movement points of the supply dumps and so can supply the attack and the defense in combat.
How much does combat cost? See the yellow circles on the counters on the left side? Thats the step size of the units. The defender always pays 1 or 2 tokens for defense. The attacker pays 1 supply token per step attacking. So the Germans will pay 4 tokens and the defenders will pay 2 tokens (for being over 1 step in size). In OCS supply 1 SP equals 4 tokens. Think of it like 4 quarters equal a dollar in US currency. Therefore the German division will drain ALL the supply from the dump near Herentals. The Belgian defenders will use ALL the 2 tokens in Brussels. The next shot shows the supplies drained and tokens removed.
Now that we know the attack will happen (if attacker cannot draw supply attack is cancelled) we must calculate the combat wide die roll modifier. This modifier will be used in the surprise roll and the final roll to determine the result. This roll comes from comparing action ratings. Action ratings can be thought of as the overall combat ability of a unit. It is the small black number on the counter in the lower middle (between the white numbers which are attack and movement). The Germans have the higher AR so they will get a combat wide +1 die roll modifier.
Now we must roll for surprise. In OCS surprise can be the great combat equalizer. It can result in a total shock to the system and really throw your combat plans out of whack. You must roll 2d6 and consult the surprise table. The Germans add one to their roll and get a total of 9. Close but not enough as they needed 10 or more (see the pic below). Surprise can result in a 1D6 combat column shift so it is an immense modifier. Now we must have the defender pick the terrain types he wants to use in the fight.
The defender can pick a hex terrain type that the combat will be fought in. He cannot use a hexside for this choice. The Belgians have no choice but to pick "OPEN". Now the defender can pick the terrain type to modify the attackers strength. This CAN be a hexside so of course the defender picks minor river. This will cut the German attack strength in HALF!.
Once we have all the modifiers to terrain and such we figure our odds. The Germans had a 20 attack strength but that river cuts it to 10. The Belgians have a 10 defense so the odds are 1:1 on the OPEN combat line on the combat results table.
The German player rolls and he gets a terrible roll of 3. He adds his +1 from the AR adjustments earlier and gets a total of 4. Still terrible. As you can see below that is a result of ATTACKER LOSES A STEP AND OPTION ATTACKER: retreat 1 or lose another step! The German attack fails miserably.
The German 86th Division has 4 steps and has fought hard to gain that river bank. They do not wish to retreat so they will take 1 step loss as the option. In one attack they have suffered two step losses and the 2 Step Loss marker is place below the unit to show this. The German division is mauled and will have to lick its wounds before pushing onward.
The attack segment will now to go on to any other attacks the phasing player wishes to make.
And there you have a very simple combat example in the OCS system. Of course this was a very easy setup and you won't always see this but it demonstrated the terrain and how to assign step losses.