There are two different types of Formations in Riviera: The Promised Land: Attack (2-1) and Magic (1-2).Choosing your formation is an integral part of Riviera's battle system, and is mandated for the rest of the game once the player reaches Chapter 2 - Pursuit of Truth. The formations also affect the efficiency of the two types of skills (attack and magic); when using the corresponding skill type, the character's wait time is decreased slightly. Generally, magic excels in the back row and direct attacks work best up close, in the front row.
The attack formation promotes the use of skills that make direct contact, such as Serene's Reap and Fia's Touche. It is ideal to put the characters that will be using such skills up front and have the magic user (if planned) in the back.
The magic formation encourages a magic-heavy strategy. The two magic users should be in the back row, but be mindful that the sole character up front (typically Ein since he's forced into all non-Practice battles) may take the bulk of the enemy attacks.
There's never a right or wrong on which formation should be used in any given battle; there are a number of determining factors that will influence the player's choice, such as their play style or tactic, available items, etc.