What are the differences between campaign difficulties?

[Sloty]

What are the differences between campaign difficulties?
I want to change from hard to very hard. What are the differences between those two? Does the AI cheat to get more money? Or is it more intelligent? What else?

Or will I get a penalty on my Income?

[Eren]

They receive some extra money to alleviate their incompetence, if you consider it cheating you can remove the bonus rather easily in the campaign_script.txt file

They also get reinforcements at the beginning of the game based on difficulty level, so on Very Hard the AI will actually secure rebel territories around them, leading you to choose which ones you need to take first instead of simply watching the AI sit at home while you take them all. You can also remove these reinforcements in the Startup Reinforcements section of the campaign_script.txt

In general check out campaign_script.txt it's self explanatory stuff.

They use naval invasions more proficiently (it seems to me, anyways)

Changing your capital is more costly.

[Riva]

The CAI behaviour does change too on higher difficulty settings, f.e. they will react more aggressive towards you or will not accept certain diplomatic conditions.

[MortalCoil]

Really depends on the AI you pick though