The army that Gideon gathered numbered 32,000 men, too large for God's purposes. If the battle had been engaged, Israel would have attributed the success of the battle to their large numbers. Therefore, God set about paring down the force. First, those who were afraid of battle would be dismissed. That left 10,000 soldiers. Still too many. So God instructed Gideon to bring the army down to a stream or pool. There Gideon was to separate the men into two groups—those who scooped water in their hand and brought it to their mouth, and those who got down on all fours to drink by placing their face in the water. Those who scooped the water numbered 300, and those were the men God chose.
As to why God chose this method, we simply do not know. However, being such an unusual occurrence, it is deserving of a comment here. The Nelson Study Bible offers a note on this division, the merits of which you may judge for yourself: "Some commentators have suggested that the men who did not get down on their knees were maintaining a higher degree of military readiness by drinking out of their hands. However, they may be reading too much into the account, for the text does not indicate any reason for Gideon's preference. The reference to the way a dog laps might even be derogatory since dogs were despised creatures in the ancient world [as they were considered worthless scavengers] (1 Samuel 17:43; 2 Kings 8:13; Matthew 7:6). If so, God's role in the victory becomes even more apparent, since the three hundred who were left were the ones who did not even have the common sense to drink in a normal fashion. God's comment in v. 7 seems to reinforce this suggestion" (note on Judges 7:4-5). Still, others stress the alertness of a dog as a positive. Whatever the reason, we are still left with an incredible miracle of winning with only 300 men.
When the battle was engaged by night, Gideon gave every man a torch, a clay pitcher and a horn. As the troops dispersed in the night, descending on the Midianites in the valley, Gideon gave the sign. The horns blew, the pitchers were broken, the torches flared and a great shout was made—all simultaneously. This was an important stratagem. Normally only the commander of a body of men would have a horn and a torch, so the sound of 300 horns and the sight of 300 torches made it appear that Israel had a very large army. Moreover, the sound of 300 clay pitchers breaking simultaneously would have carried down the valley walls sounding like the clanking of military armor. The valley walls would also have caused the noises to amplify. The sight of the torches and sound of the Israelites' horns and shouting terrified the Midianites, who imagined a huge army bearing down on them. It was every man for himself, most fleeing without their armor or battle gear, thus becoming even easier prey for Gideon and his little band. In the confusion, the Midianites, Amalekites and Mesopotamians even slaughtered each other in the dark in their panic and desperation.
So God, by the most insignificant man in Manasseh leading an insignificant troop, wrought a great victory for Israel. And there was peace for 40 years (Judges 8:28)