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The term ship of the line comes from the naval strategy of forming a line of ships. Only the ships with the highest amount of cannons are allowed to participate in the line, while smaller ships stay on the outside.
In Empire: Total War, ship of the lines are the main backbone of a navy, while frigates and brigs are auxiliary vessels. Ship of the lines are the ones at the forefront of any major naval conflict and their status is what mainly determines the outcome of a battle. One additional ship of the line can turn the outcome of a battle.