First, so I don’t confuse you unduely: a crenelated battlement is that funny, square-wave shape at the top of castle walls and fortifications; a merlon is the solid part (that you can’t shoot arrows through); a crenelle is the open space between merlons (that you do shoot arrows through).
Modelling a rook is indeed very hard.
The first thing that will help you is considering how the subsurfacing works: it basically uses your original mesh to define a bezier surface. Just like when you have a bezier curve (for example, in the IPO Curve Editor connecting key points, or if you Add --> Curve --> Bezier Curve and add more than two points to it…
You can see that moving one point affects the neighboring points. The thing that’s hard to get your mind around concerning the bezier surface is that it is no longer one-dimentional but three-dimentional.
This will seem abnoxious, but bear with me.
Your standard cube, and subsurfaced:
It kind of wants to collapse into a sphere, no?
Let’s try to make that front edge (closest to us) nice and sharp. Add an edge loop:
The problem we notice is that while something got sharper, the front edge is still bowed out towards us. As is the top. The whole side face got a sharp edge, but the face itself is still round. Foo.
OK, so we try to get rid of the roundness on the top edge:
Likewise on the front edge:
The problem is (just like down the length of your rook) we now have more sharp edges than we wanted to begin with…
If you look at the middle rook in my image above (the wireframe with subsurf) you’ll see an edge-loop going around the crenelle. This gives the edge that nice sharpness without extending down into the base.
Moral: use edge-loops.
Here I’ve done the same thing to the point of the cube closest to us. Notice that edge-loop going around the point. The rest of the cube still wants to be round, but the point is maintained by that edge loop.
Now that preliminaries are over: on to your specific questions:
image 1: good setup.
image 2: the inner part is not flat because of the bezier surface: the crenelations are pulling up at the edges of the roof. If you look at the top view of my rook above, you’ll see a number of concentric circles (edge loops) in the roof. (I’ve purposefully made my roof somewhat dome-shaped so that the middle is higher-up than the outer edges. For a flat roof you probably won’t need as many edge loops as I have, but you’ll need at least two.)
image 2 and 3: the merlons are rounded at the crenelle. As I noted in the preliminaries, you need an edge loop around the crenelle.
image 4: no comment.
Don’t give up.
Hope this helps.