While in general I like the idea, I think your statement of " The idea of having one army for your realm would be laughable for anything except the smallest city states" is woefully optimistic. I would think that a very large portion of the realms in the game would not be able to support multiple special-purpose armies. It's also a case of having to match whatever your enemy uses, and the terrain in your realm and your enemy's realm. If your enemy is all open plains, and they BigBlob you through your one open rural, you will have no choice but to meet them there. Your elite infantry army tailored to the mountain choke points will be next to useless on the open fields.
Nevertheless, this is an interesting idea to add some terrain effects into the mix.
