From Populous Wiki
Balloons are a form of transportation in Populous. The Balloon can hold only two units. They also assume the color of the Tribe or spy that inhabits the balloon. They also make units move more quickly and also enable them to move over water which is otherwise impossible which makes them more effective than Boats in traveling. They also take up lesser amounts of Wood during construction. Opponents' Balloons can be captured if one of your followers is made to sit in their Balloon.
The Balloon also increases the Range of a Shaman and Firewarrior, though preachers have no effect in balloons. The Balloon also increases the defense of a unit but the Shaman is more suitable to damage from a Firewarrior while placed in a Balloon. Although the Balloon is effective against opponent units a simple swarm can make the followers dismount the Balloon immediately by either drowning them (If the balloon was over water) or making them run crazy when on land.
Mounting a Balloon with Firewarriors and casting Magic Shield makes them completely invulnerable which led to this tactic being banned from most multiplayer games because of it's unstoppable nature. Also, mounting a Balloon with at least one spy makes you able to fake the Balloon's ownership and foster war between allies (theoretically).
If no followers or a shaman is placed in the Balloon for certain duration of time Balloon will explode.