A huge challenge for the AI is geographical, if this was a fixed map every time, the game might be boring, but the AI would definitely not have issues like this. It looks like here it has encountered a road block which it is desperately trying to push through. You easily are able to bottle neck him and then it just becomes a cleanup op. This is a definite problem reoccurring issue for all the AIs. Thanks for the screen. I have always contemplated and AI that has map strategies, like one dedicated specifically to a real world map.
The Info Area (lower right) shows the basic battle odds for the active unit vs the unit the mouse cursor is over. It does not take into account readiness I believe. (because enemy readiness is not your intel).
Inland Cities with ship specialties _are_ a waste in most respects - as is a city at 10% efficiency. In other words, it is a handicap for that city and something to be dealt with strategically. Do remember that Engineers can build ports, and these can be useful sometimes in specific situations, but often yeah, it is a handicap.
Regarding activate last, what you have to remember is since the last unit you manually worked with several units could have been automatically processed when activated, which is why you see those before you get to the unit of choice.
The Process Break Dialog will appear after you press the red flag stop sign while it is processing units. The flag is supposed to be reset after it breaks, (the dialog), but I have had one other report that it might be going off at odd times as well. If you press it while the AI is doing its thing, the dialog will come up when it is done.
Are you using the stop sign? If so, how?