The easy way

In King's Bounty you can easily get extreme power before you even fight the first villain. All you have to do is follow the simple process here:

When you begin the game don't hire extra soldiers, just get a boat and start looking for treasure while dodging fights as much as possible. Always distribute your gold.

When you find the map to Forestria go there and get some treasures until you get the map and so on until you reach Saharia.

Saharia has by far the best treasures in the game. you can gain masses of control by distributing the treasures there. Unfortunately most of them are guarded by extremely powerful monsters. The thing you need to do is buy a single dragon, demon, vampire, or archmage and dismiss your other armies then use it to fly around and get the treasures.

As soon as you find most of the treasures in Saharia go buy some dragons (assuming there are some, I've played one game when there wasn't any, it sucked)

Once you have 5-10 dragons sail back to continentia, dismiss everything else and fly around getting each of the villains (no army on continentia can stand up to these dragons, any unit will die in one hit against these, and not a single dragon should die defeating the entire continent)

After you clear our Continentia get your promotion and go to Forestria and continue your destruction. Then get another promotion.

It gets a bit harder after that. The villains of Archipelia can beat a couple dragons. Go back to Saharia and stock up a few more dragons. Maybe some demons and archmages too if you want to be really safe.

Then feel free to use those armies to ravage the villains in Archipelia. Get a promotion and head to Saharia.

At this point the game takes an incredible turn towards impossible.

The first thing you need to do is grab as many dragons, archmages, demons, and vampires as you can afford.

This army should be able to stand up to the first two villains, Magus Deathspell and Urthrax Killspite, But Arech is a whole different story, yoou will need alot more power than this to beat him, I seriously recommend you use a perfect army strategy and beat him with a combination of:Knights, Dragons, Demons, and whatever unit you get using the Perfect army strategy.

Arech has an incredibly powerful army a total of about 150 dragons, and about 100 demons and vampires. This will be the most challenging battle in the game regardless of how powerful your army is.

I would like to note that even though you can hire Hordes of sprites to do thousands of damage the skill level adjustments and the fact that peasants and sprites cant in any way harm dragons amke them utterly useless here. A single counterattack from Arech's dragons can kill thousands of them.

Once you use the perfect army strategy you should be able to beat Arech Dragonbreath.