Religion, and more precisely, faith points, in Stronghold Kingdoms™ are vital for deploying Monks, which can be used in a variety of rôles throughout the game. There are several types of religious building which can be built in both the player's village and in capitals in order to generate more faith points.
Faith Points are required to carry out the many tasks of monks, e.g. curing disease, performing interdictions etc. To gain points you will need to research Theology, and place religious buildings (which require further research - please see below).
Religious buildings are used for generating faith points, which monks use when performing actions in the world. There are five (5) types of religious building: small shrine, large shrine, chapel, church and cathedral. Before these can be built however, Theology, must be researched (this can be started at Rank 8, once Arts, Level 3 has been researched).
A Church may also be placed in the Capital Town, giving all villages within that parish a daily number of faith points.
Religious research begins with Theology, which starts the production of faith points for your villages. Further research opens up other features, such as more advanced religious buildings and different monk actions.
For more information on Monks go here