This was added with 1.04. I did a search but did not find any strategy for its use, so here goes.
To use the option, the stack must have a leader and at least one infantry unit. With "Retaliate" active, the stack may enter an enemy region, initiate combat, but then return to its friendly starting region without the enemy region changing hands. So...
I built a slave market in a region within range of some enemy regions (independents are perfect for this). My region had a good number of citizens and a green loyalty number. I then "Retaliated" several times against the enemy regions. The result was, I got some slaves in the slave market region I had prepared and the army units got some continuous training. With an event message, I could move the free slaves around or sell 10 for 1000 cash. My loyal slave market region was able to absorb a good number of slaves and I had stationed a stack of 8 light cavalry to further control them. You don't get a slave every time you retaliate, but the more you do it, the more slaves you get. It seems to me that this would work for any faction. You get any number of slaves that your faction can absorb and then you can sell the rest for cash. In addition, you get a well trained army. Win, win!