They were all amazed with the technology that Annette had completed for the Republic.

I don't know if they've ever explained what the cloud of flying Legion do. I just assumed they were visual and radio jammers because that kind of stuff always is. A quick and very careful look (to avoid spoiling myself!) on the 86 Wikia says that the "Eintagsfliege" Legion are exactly that, electronic disruption that scrambles radar and all communication, allowing the Legion to fight disoriented and uncoordinated biological enemies. They also apparently serve the same purpose the Laser-class BETA do in Muv-Luv, preventing air combat units.

Annette perfected extending psychic communication, so it works around the flying bugs.

The Federation got torn apart by their own rogue AI army, so probably. But they also have aircraft and San Maganolia doesn't have anything more the helicopters that are extremely vulnerable outside the walls of the main districts.

The Legion seems mostly directed at annihilating San Magnolia, who was at war with the Empire before they had their own civil war and the Legion went rogue.