I've just done a quick test to confirm that, when you fuse a general who has leveled up quite a ways into another general, 70% of the experience put into the first general carries over. That's about in line with what I expected.

As for whether attack power or bonus damage is stronger, I think it varies some on the power and leadership ratings of the generals involved. I've got a Sanada Yukitaka (+150% attack power) and a Tiger of Kai (350% damage). Sanada Yukitaka tends to deal more damage against weak generals with low power and leadership, while Tiger of Kai tends to deal more damage against strong generals with high power and leadership. That's without changing my own generals, and seems to hold regardless of the defense rating of the opponent.