The Cottage is a building that determines the maximum number of population (troops) you can have. Your maximum population is 800 plus 200 for every level of Cottage. This buildings main purpose, is to make life a little easier for you, so you dont have to recruit more troops after each dungeon.
If you have serveral different kind of troops (bounty quest req.) , you can dismiss them and get 1 Daru per troop back.
(See the Building page for upgrade costs and cooldowns)