Armor and damage
Armor is the sum of the values of every piece you wear. It reduces physical and elemental damage. While a hit is weaker than twice your armor, it is cut by about half or more; very strong hits are reduced much less, which is why old armor has to be replaced at each new stage.
Sets
Some sets give a bonus when you wear every piece: Bear armor gives Berserk, troll leather gives stealth, root armor gives improved archery, Fenris armor boosts unarmed combat. The other sets have no bonus, but it is still better to wear their pieces together for the armor.
Weight and speed
Heavy armor (iron, padded, flametal) slows your movement: the penalty is shown on every piece and adds up. Light and magic sets give less armor, but do not get in the way of running, dodging or casting.
Resistances and capes
Some armor gives a resistance to an element or to a certain damage type. Capes give little armor, but they are what protect you from the cold in the Mountains and the Deep North, and some give a slow fall or a tailwind.
Quality levels
Each level adds armor and durability and needs a station one level higher. Beyond the maximum, armor can be raised further with a protection idol at the Forge of Potential.
Clothing and decor
Dresses, tunics and hats give almost no protection, but they make building with the hammer, hoe and cultivator easier. Tunics take the cape slot, dresses take the chest slot.