In this game Magic Stone only drop from creeps, and it is only used to upgrade units, making units, hero and building just cost gold. That means Magic Stone is a very limited but important resource.
In a map you MF more creep, you get more MS, and your enemy gets less.In Blacksmith or Spiritlodge, every 300 MS can upgrade a unit. The upgrade is not like +2 Damage or +1 Armor, it will unlock the Talent Ability, just like in WOW characters got their Final Talent Ability, which will entirely change the unit.
For example, Alliance has a T2 unit Gnome Arcanist, his first ability is Slow just like War3 Scorceress, and second ability is Blink just like SC2 Stalker, his attack damage is not very high, so a Gnome Arcanist without upgrade is a good assistant in the team. But if you decide to invest 300 Magic Stone to upgrade, he will get Arcane Explosion ability, which deal too much AOE damage. Large amount of Gnome Arcanist, Blink to the enemy + (Aracane Explosion * n) will destroy enemies in a short time. So we can see that upgrade is not simply add porperties, it would entirely change a unit. (BTW, I make this design from WOW, in Alterac Valley I had seen many Gnome Mages use blink + ae, so now I want to show them in RTS way)