[@Alfhedil] You have a set amount of points to spend, the number is based on what sort of power you are, an Old World Major power gets 25, Regional powers get 15 and can be anywhere in the world. You can spend these points on 5 stats; Population, Martial Prowess, Cultural Unity, Navy and Colonies. On the front page in the NS it explains more as to how much each point will get you.
Theodorable will tell you the size of your army and their ability at combat which I assume is based on military prowess and population respectively. Claims on other factions is decided by Cultural Unity, both of these stats will be given, after you have announced how many points you are spending on them.