Cavalry should attack on a 1, defend on a 1, and move at a 2. They could be combined with other units to up their abilities. For example, they could defend on a 2 if paired with infantry. THey could attack on a 2 if attacking with infantry. They should cost 3 IPCs.
The real role of cavalry should be to harass the enemy. If cavalry are in a battle, the other units cannot retreat nor engage another contested territory until the Cavalry are cleared out of that territory. In effect the unit is stuck there. This would simulate cavalry cutting supply lines and communications etc.
Also, cavalry could disrupt IPCs by entering into a vacant territory and in effect scorching the earth. The territory would lose 1 IPC for every Cavalry performing this task in that territory. A marker could be used to denote the territories new value. Cavalry themselves could not conquer a territory by themselves. They would need to be paired with an infantry.
On the map, all the territories on the Western front are occupied so this tactic would not really be used. However on the Eastern Front there are a couple of open territories mainly in Russia where it could be used. Also, The middle east and Africa are more wide open. This rule conjures up images of Lawrence of Arabia!