Like I said before, I've begun my long and ardurous journey to rescue the North from the clutches of evil in IWD2. but i'm playing on Insane. Last time I was playing on Very easy but stopped midway. Now I've reached Torak of the Broken Tusk Clan of orcs. but the battle is way too hard for me. The orc warriors are sometimes chop down my guys with only one blow.

In IWD1, after completing the game in Medium difficulty, I found Insane quite easier to deal with that I had expected.

So does the game remember your progress and accordingly adjust the difficuly level? Will it be better for me to play on Easy or Medium before pushing it up to Insane?

I wouldn't recomend insane, since the enemies get more difficult with no xp gain. I usually just stick at normal, then import and crank the difficulty up to Heart of Fury. I've never toyed around with insane or easy, but both of them IMO just aren't the way to play.