Dead crewmen will show up as all red in your crew roster. Interactions with the dead in the game are limited, although some of the more imaginative forum users have some ideas.
Injured crewmen have a red border around them. They are treated like dead crewmen, except that they can be healed. To heal a wounded crewman, place the injured man in one of the berths, and put a crewman or officer who is rated as a medic in the same berth. Over time, the crewman will heal, and be returned to more or less normal.
In my experience with SHIII, wounded crewmen are quite rare, but I have gotten them as the result of running my boat into mines, as well as from being attacked by airplanes.
Wounded crewmen cause the "wound badge" decoration to be enabled in the game. Thr trouble is that if you heal the crewman at sea, you likely won't be able to award the badge. You have to bring the guy home wonded so that he recovers in port, then you can award the badge. Or, presumably, you could award the badge in SH Commander, although I have no idea if the wound badge gives your crew any performance bonuses -- I would imagine that it doesn't.
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