Is damage a function of strength and the weapon? Or is skill of the combatant also involved in determining how much damage is dealt?
I don't know the raw mechanics of it, but skill without a doubt determins how much damage is done. Take a 25 day old warrior and fight another 25 day old warrior with training weapons. When you hit, you are going to nick each other and in all likelyhood could fight for days and still not kill one another. Now take that training weapon to a n00b ranger. Your first two hits are probably going to be enough to put him in a hospital. If he sticks around for a few more seconds he is going to be a pile of mush at your feet.
Obviously strenght is also considered. If a half-giant lands a blow on you, even if the half-giant sucks and you are a master, it is going to hurt.
In a nutshell:
Strength and size of the weapon has the most to do with the amount of damage. As skill goes up you strike more often, more precisely, and more destructively.
Your opponent's combat skill can reduce the amount of damage done if you hit him, and your own combat skill can increase the amount of damage done if you hit your opponent.
Stats play a major role in combat, and will influence how much damage you do, how often you hit, how often you dodge being hit, how often you succeed, fail, or avoid command attacks, how much damage you "escape" when hit, and the list goes on. Eventually, when your skill rises high enough from the starting level, it's harder to judge how much skill difference there is between you and your opponent, and it becomes a lot harder to judge how much of a factor stats have when you can't read the skill numbers behind the fight. A lot of people believe that stats make little difference at this point in the "development stage" of a warrior's coded skills, while others believe that stats dictate a PC's fighting potential from the very start. With experience, everyone comes up with their own conclusion.