Daggerfall's melee combat involves motioning the mouse in a way to swing your weapon in a certain angle.

I can do a Horizontal, Vertical, Diagonal, and Thrusting/Stabbing attacks with my weapon.

But in Daggerfall Unity mod, there is the option to just have click mouse to hit, no holding then motioning the mouse to attack.

But this comes with no longer being able to do angled attacks.

So does the angle attacks actually have an affect in combat or no?

As long as it isn't the dull side of the blade, striking.

Yes. Diagonal attacks do more damage than horizontal ones, but are less accurate.

[url=https://en.uesp.net/wiki/Daggerfall:Combat]https://en.uesp.net/wiki/Daggerfall:Combat[/url]

I've also been playing Daggerfall Unity recently, and the click to attack option was the first thing I turned on. Such a great addition to the new engine!

But doesn't it affect the game negatively, not being able to swing in angles?

Yep, i'd do that too. I tried playing daggerfall some years ago and the click-drag attack was heavily annoying after starting with Morrowind...

I have a level 7 now, and I haven't ran into any difficulty fighting enemies. Other than undead who are only weak to blunt weapons, and I my skill with them is much lower than my long blade skill.

If it's the same as in Arena, the more vertical the attack, the more powerful the strike, but the less accurate it is.
Forward thrust is the most accurate but the less powerful.