Battle formations are learned about 1/5th of the way through the game. They can only be used at the beginning of a players turn, you will move to the enemy you wish to attack and you'll notice the option to use BF by hitting the button. It can only be used directly next to an enemy and requires "assist" attacks or "teamwork" attacks. In order to do those Diaz must be alive and not knocked down and can be accessed when based on the squares at the bottom left of the screen. One full square allows for an assist, worth 5 gauge points. Two allow for a Teamwork attack worth 10 Gauge points. build up to 25/50/75/100 respectively in order to perform stronger BF attacks. When you have completed 50 BF attacks save and this will be yours.