When facing overwhelming odds, what's the ultimate advantage Israel had? It wasn't their numbers or their weapons.
The reason God commands Israel not to fear is powerfully stated in the verses surrounding this command: "for the LORD your God is with you" (Deuteronomy 20:1) and "For the LORD your God is he that goeth with you, to fight for you against your enemies, to save you" (Deuteronomy 20:4).
This is the cornerstone of their courage. They weren't meant to rely on their own strength, numbers, or military strategy. Their confidence was to be placed squarely in the presence and power of God Himself. He was their leader, their protector, and their ultimate source of victory.
When they saw horses, chariots, and a people more numerous than themselves, their focus was to shift from the overwhelming enemy to the ever-present God. His past acts of deliverance (bringing them out of Egypt) were a tangible reminder of His power and faithfulness. This divine presence was their greatest asset, transforming a terrifying situation into an opportunity to see God fight for them.