Because morale checks are based on what has happened to that squad, not on the larger state of the battle.
Once a squad has taken enough damage, they'll start making morale checks every turn. When they fail one, they'll retreat.
If they all make it off the field before the enemy does, you lose.
That all seems straightforward, if a little strange
I've never seen the disappearing troops though. They'll certainly be detached from their commanders and scattered, but I've never noticed losing them. Do commanders disappear?