The fear is what makes him stronger than someone who has comparative physical strength. That's what Eisen was pointing out.
Stark is very strong. Stronger than Eisen was 80 years ago at his own peak. But Stark is still afraid of strong enemies. He's never overconfident because of it. That gives Stark a distinct edge. He is cautious because he's always wondering if he'll die facing an opponent.
He has a good balance of pride not to run away when he needs to and goad an opponent into paying attention to him, but he's cautious enough not to make fatal mistakes.
They can't afford losing the lord of the city. The demons want him too, so even if the demons think they have the advantage because they can find Stark, Fern, and the lord, with their blood spatter, they are still forced into the position of chasing Fern and Stark. With Fern's proficiency in suppresses her mana, that means the duo can reset for another ambush.
The only other strategy the demons might have is to start slaughtering all the townspeople to lure Stark and Fern out, but even then, Fern can likely obliterate them from beyond the demon's own range. The demons had the advantage inside of the castle's rooms after Fern made her presence known.
So yeah, tactical retreat was the best call.