Read the wiki I linked when you encounter something that makes you think it's out of your class. Once you understand why it seems so powerful, you may realize it has great weaknesses that you can exploit.
It was certainly(and still is) frustrating fighting against Caelum or Vanheim or other air nations with heavily armored guys(like Abysians), something I did a lot in my early times. The thunder strikes their mages dish out makes me want to cry, when my troops can't get even close, and I don't have cheap units to use as chaff to take their attacks. Sometimes Dominions is pain.
Generally when you're inferior, yes, you defend and hide until you can match the enemy, making attacks at their poorly defended provinces down the line(You get stealthy monkeys, right? Although if I remember correctly, they are terrible useless even as raiders since they have no armor and you don't get stealthy mages(Or are nagini stealthy in human form? A nagini casting Wooden Warriors will make them a lot more powerful)). Basic guerrilla tactics.
Research, trade for gems, summon guys and equip them with items, or summon battle mages and have them cast high level spells.
Hiding from Vanheim shouldn't be hard, their troops are mostly expensive and thus not good at sieging. Agarthans on the other hand are cheap and have a siege bonus.