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Discipline is a skill highly relevant to military dwarves, and somewhat less important for civilian dwarves. A dwarf with high discipline is less likely to retreat in battle, or to cancel a job when witnessing death. This makes it very useful when many dwarves die in a fight; without discipline even a dwarf with legendary weapon skills will panic and run before he is even able to do anything to the enemies trying to kill you. It is also helpful for keeping your medic from panicking when you're having a bit too much fun and they lose a patient with others waiting to be tended to.
Active military training raises the discipline skill (rather quickly, in fact), so giving your dwarves a few months of basic military training is helpful before throwing them onto the battlefield.
Being exposed to things such as dead bodies, and cancelling jobs due to being "horrified" also contributes to the raising of the discipline skill.
Somewhat contrary to what one may expect, creatures with a naturally high tolerance for mental stress and horror will actually have some difficulty training their discipline through exposure and live training as they will not spend as much time being horrified by what is happening.