Thanks for playing!
1 - Adjacent is anything next to the space in an orthogonal (up, down, left, right) direction. Range of 1 can be any space within 1, in all directions.
2 - Diagonal is considered 1 away, not adjacent. You will see a range of 1 being listed for ranged weapons only for this reason.
I'll be sure to clear this up on my next iteration as it actually confuses the next part...
Cleave only does 1 damage to adjacent enemies, not the full amount of damage for the weapon (page 13). Cleave is unique in that it does 1 damage at Range 1, when weapons only target Adjacent or Melee. It's a bonus for using a 2 handed weapon.
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I'm happy to hear the procedural generation gave you an interesting encounter to experience. I am looking further into character spawn locations as the 6x6 grid with obstacles does limit starting points for the groups. It does seem like 3/4 times I start within 2 of an enemy which can always feel like an ambush, which isn't the direction I want combat to be going to.
I currently use round tokens of different sizes and colour for my obstacles and difficult terrain. I'll put together a printable token sheet for next release, to help those players who might not have tokens and such on-hand.