Well, given the first demands of the Dominion (the WGC basically) I was thinking more of their original plan for the Empire to give them the Hammerfell territory they wanted. I'm assuming that's why they attacked both Cyrodiil and Hammerfell at the same time.
They knew the Empire wouldn't give them territory straight away, why would they want to try take Hammerfell or at least damage it enough to cripple the southern areas? The same reason they took Valenwood, limit the ability for a counter attack.
Attacking Cyrodiil at the same time was to distract the Empire, they were probably hoping that the Legion would relocate to better protect the Emperor if they were pushed out of Hammerfell. General Decianus proved stubborn and managed to halt their advance outside of Skaven.
Without thinking too hard or long about it I'm gonna guess they consider this territory important and/or of high value, most probably for something having to do with plans about the next or the 'real' war against the Empire, when the Empire ceases to exist.
Cape of the Blue Divide would have likely been the reason to try occupy or cripple the territory of the southern half. That is the best location for a naval staging ground to attack Dominion waters, where the West Imperial Navy probably had their shipyards and were docked.
Now if I was the Dominion, I'd want to occupy that location or at least devastate the entire area. Just burn it to the ground, if you couldn't use it, no one can.
The Aldmeri Dominion are cunning, everything they've done so far is strategically sound (save the full invasion of Cyrodiil). Taking Valenwood gave them allies, soldiers and resources. Most importantly it allowed them a staging ground into mainland Tamriel and robbed the Empire of the ability to conduct an invasion of Summerset Isle with their Legions.
Southern Hammerfell is the next target, that is targeting naval control of the waters. Hitting another staging ground of their enemy, instead of a land staging ground this is the Imperial Navy's strategic location.
That plan obviously changed when they thought they could finish off the Empire right away.
Thinking on it, I wouldn't exactly say their plans completely changed. More likely they advanced their plans, finishing off the Empire was a later plan.
But then they got a black eye in Cyrodiil. Then they switched to at least keeping their Hammerfell gains.
Yes, their plans for Cyrodiil fell apart. They probably switched back to occupying or crippling the south.
And then got another black eye.
Depends how we look at it, even though they did not expand landmass. They crippled the best naval staging grounds. Military wise they managed to have a "victory" more or less in crippling their target, politically they didn't get much.
Soldiers lost, resource expenses. Acceptable losses to the Dominion most likely, they still managed to cause a rift between Hammerfell and the Empire + devastate a strategic location.
In terms of their goals, at least prior to the war, they got half of what they wanted since they got most of the WGC. Not bad, but obviously not the best possible outcome for them.
White-Gold Concordat is small time victory, they're only gaining from the Civil War and should the Stormcloaks or Legion win that war, both sides are back to focusing on them and harming their presence. Stormcloaks due to obvious reasons, and Legion due to becoming aware of the Thalmor's game.
Ok, I agree the Dominion will be defeated when you crush them completely. But the same goes for the Empire as well. And obviously neither happened this time around. We'll see in round 2.
They'll wish they could have destroyed the Empire, no doubt. Very rarely do you get a second chance to do so.
As for Hammerfell, as I said before, I consider the outcome a win for Hammerfell because they didn't gave up the territory the Dominion wanted to have. You can argue that it's destroyed all the same. And it's somewhat of a fair point but it's still not what even the Dominion probably would want if we assume they want that land for a reason. For example if they want the land so they can have easier supply routes for the next war, the land being destroyed doesn't benefits them either.
They're not supply routes, it is the Cape of the Blue Divide would be the reason to try occupy or cripple the area. Yes we can argue the Redguards didn't lose their lands, but they still weren't able to save the devastated areas. We could say that both the Dominion and Redguards "won" in a limited sense, Redguards didn't lose lands at great cost. Dominion didn't occupy the lands, but managed to devastate strategic naval staging grounds.
Yeah, it was strange them not mentioning the Redguards. Maybe the devs didn't want to reveal that something more is happening there that we know? If we go back to the Redguard woman quest in Whiterun there is an interesting line that you mentioned before about how the main guy searching for her says something about how "the resistance against the Dominion is still alive and well" or something. Which is somewhat of a strange line and raises more than a few eyebrows for sure.
Yes, the resistance is something of an eyebrow raiser. Another one is that both are saying the other is a Thalmor sympathizer/worked with the Thalmor. Could mean the Thalmor are still active in Hammerfell, although likely indirectly such as how they use the Imperials and Stormcloaks in the civil war etc.
Given the Hammerfell withdrawal, the fact that the Dominion even returned to the table and not attack Cyrodiill again, I'm more inclined to believe they are more or less of equal strength again.
I think the Dominion would be wary of attacking Cyrodiil that soon. They needed to rebuild also, but it would be like making the same mistake over again. They've learned from the failed first invasion.
I don't think their losses are moot, maybe if Hammerfell and the Emperor fully capitulated and gave total control which they didn't. But losses are still losses and that will still play part in the next conflict.
In the next war they'll still have veterans from the first war, whereas mankind's veterans are entering retirement.
Ok, assuming that's true which I have not much doubt that it isn't, they wouldn't create this lore just for the lulz of it... The obvious logical question is, what the hell happened to the guy? He was reckless and a bad ass enough to lead the charge of the city but then pulls out the big thinking guy routine, considering all the options and seeing the big picture that the Empire has a better chance the next time around? That's a complete 180 of a character that charges with a katana, killing people left and right.. I don't know, maybe it makes sense. I'm sticking with the battle being so brutal it had an effect on his soul/spirit.
I see it as picking your battles. I don't see him as reckless, rather he was very pragmatic and a brilliant strategist. He was smart enough to fool the Dominion twice, first by abandoning the city which they would have never suspected and then again by fooling them into thinking he was about to surrender only to suddenly appear with the combined might of the Empire to launch a counter attack.
Titus II obviously wasn't going to risk destruction when the best he'll get is Talos worship allowed. It was a sacrifice, not the most favorable sacrifice but one that allowed the Empire to rebuild and recover for the most part.
Ok, but all of that would just mean what I said before. After the second battle for the capitol city the forces were more or less leveled. Actually doesn't it mean that the Empire's forces were outnumbering the Dominion's? After all the Legions in Cyrodiil didn't return to Hammerfell. They were busy with the chaos in Cyrodiil. Returning would be a foolish move obviously, but isn't the fact that the next 5 years Hammerfell stands firm with only the remnants of the Empire's forces in Hammerfell and the Redguard forces mean that the Dominion's army and capabilities aren't that big or bigger than the Empire's?
No, it wouldn't make them bigger. The Legion had good Generals. When the Thalmor arrived with their demands, Titus' Generals warned him about the Empire's military weakness. They obviously didn't have an optimal force in regards to the Empire's size and the needs for an effective defense.
The Redguards fighting an effective resistance doesn't mean the Dominion's forces or capabilities were less than the Empire. It is just what the Redguards are very skilled at, they know their land, which is quite harsh. Be like the Dominion trying to occupy Skyrim, much of it is harsh and cold as fl*ff and crazy Nords keep attacking you from the hills, some conventional battles others are ambushes and war of attrition.
They might have been able to succeed had they not wasted a lot on attacking the Empire. The Empire was hit very hard in the first five years, whereas the Redguards weren't taking so much of the direct fighting.
Things might have been different if the Redguards were united before the war, were able to pull their share in the initial years of the Great War.
And the best one:
"I oppose tyrany. I oppose those who tell me how to live, what to think, and what to believe. I am a man. Skyrim is man's homeland. That is a fact, a fact I'm proud of. There is no shame in that. Read your history."
"Comes the end of the day, Imperials and Stormcloaks ain't much different. Both sides want to tell you how you should live your life. Guess I'd rather hear it from a real Nord than some Emperor down south." - Eorlund Gray-Mane. 
