Introduction
In Modern Entropia (Loot 2.0) Armor decays based on the amount of damage resisted.
Decay is a simple formula of:
Decay in pec = damage absorbed ((100,000 - durability)/100,000) x (0.05)
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WARNING: Below information is OUT OF DATE! Update 15.15 changed all of this in mid 2017.
Since VU9.1 there's been quite an intensive spell of research into Armor. I'm going to try to summarise everything we know about armor into this one thread. Please post any corrections or omissions! If you have anything you'd like added, please ask!
How plates work
How plates work is widely misunderstood and misinterpreted so I'll put an explanation here. The way it works was discovered by Witte and is documented in this thread. It's been checked and verified on many occasions.
When you receive a hit wearing armor with plates both the armor and the plates receive the full damage. They do not act as one piece with combined stats.
What happens when you get hit
(i) The full hit is offered to your armor. Its absorbs as much as it can and decays accordingly.
(ii) The full hit is also offered to your plates. Its absorbs as much as it can (regardless of how much the armor absorbed) and decays accordingly.
(iii) The damage absorbed by the armor and the damage absorbed by the plates are subtracted from the total damage. Whatever is left is what you get hit for, if its negative (or less than 1) you get hit for 1.0.
This can result in some unexpected things occurring:
Unexpected protection
Imagine taking 20 damage from a mob that does 50% Impact damage and 50% Acid damage. You're wearing an armor that protects 10 Impact and no acid. You also have plates that protect 10 Impact and no acid. You may expect the combination of your armor and plates gives you 20 Impact protection and 0 Acid protection. Thus you'd expect to protect against the 10 Impact but not the 10 Acid and so take a 10.0 dmg hit.
However, this is not how it works. The full damage is offered to both the plates and the armor. So the armor absorbs 10 Impact from the attack. The plates also absorb 10 Impact from the attack. These are added together and the result is that you have absorbed 20 damage from the attack. Thus, even though you have no acid protection, you take a 1.0 Hit.
This has caused some confusion in the past. There was a big debate about Kreltin and how they can't do acid damage. People would go up against them in Angel+Armor Plating Mk. 5B (with no Acid protection) and yet still take 1.0 hits. This was the result of the phenomenom described above, Kreltin do actually do Acid damage.
Unexpected decay
If used inappropriately, using plates can cause you more decay than you'd expect. Imagine taking a 10 damage hit from a mob that only does Impact damage. You're wearing an armor that protects 10 Impact damage, and plates that protect 10 Impact damage. Both will absorb the 10 Impact damage and decay accordingly. Thus you'll get roughly double the decay you'd expect since both the armor and the plates will decay as if they had absorbed 10 damage. Even without the plates on you'd take a 1.0 hit, so the extra decay from the plates is a waste. However, note that when used well plates improve your economy. (see discussion below)
Minimum Decay
As discussed below, all armor decays according to a formula that is used to calculate the decay based on the amount of damage absorbed and the durability of the armor. The only exception to this is for small hits. Every armor has a minimum decay.
Example - Shogun
Shogun protects 10 Impact, Cut, Stab, Burn and 5 Penetration for a total of 45 protection points. Thus its minimum decay is 0.45pec. This is roughly equivalent to a 7 dmg hit. So its probably not going to be a problem unless you are using Shogun against some really tiny mobs.
Example - Ghost
Ghost has 84 protection points. Thus its minimum decay is 0.84. This is roughly equivalent to a 12 dmg hit. So you pay more than you expect with Ghost if you take a hit from an all Electric mob (11 protection) or an all Burn mob (11 protection) or more critically an all acid mob (1 protection).
Note that its almost impossible to avoid minimum decay (apart from for plates) for all-electric mobs. The only armours that manage it are Ghoul and Orca (L). However, other armors such as Ghost and Zombie aren't too bad.
How armor decays
Upon the release of VU9.1 MA informed us they had modified the way armor decays. This brought about a spell of research to figure out how it had decayed. We also discovered some errors we had made regarding durability and mob damages as a result. The main research and findings are presented in this thread. Many of the 'usual research crowd' were involved and it was nice to see some new people getting involved. Thanks to everyone who helped! And a special thanks to Coop, who started the thread, did a significant portion of the testing and who extended some ideas developed by Witte and Doer in order to obtain what we believe is the formula used by MA. (if its not, its certainly remarkably accurate) I will try to summarise the findings below.
Change to decay
Everyone is very keen to know how armor decay changed with the VU. For very small damages absorbed it was increased a little. This occurred in the range 0-14 damage absorbed and peaks at about a 20% increase for 7 damage absorbed. The decrease for larger damages is much more significant. For instance, for over 100 damage absorbed it was more than halved. The graphs below tell the story (note in the past we mistakenly thought durability had no effect so these graphs are just a general overview of the change):
The decay formula
Armor decay obeys a reasonably simple formula. As the function is not smooth in durability, I'll split it into two formulas for simplicity. For armors with durability below 10000 the formula is:
 * \left( 1- \frac{Durability}{100000} \right))
For armors with durability above 10000 the formula is:
 * dmg^{1.75} + 0.05 * dmg \right) * \left(1 - \frac{Durability}{100000}\right))
In both formulas, dmg represents the total damage absorbed by the armor piece in the hit.
Consequences of the formula
Basically, decay per damage absorbed increases as the damage increases. So doubling the damage absorbed results in more than double the decay. This means choosing a suitable armor for a given mob is important. If you're getting mostly 1.0 hits, you're overprotecting against the mob and you're paying for it with significantly extra armor decay. Also, its generally more economical to use a combination of armor and plates than to just use armor.
A good example of this is using Rascal+Armor Plating Mk. 2A instead of Ghost for Impact protection. For a full 19 impact damage absorbed, Ghost will decay 1.439 pec. The combination of Rascal and Armor Plating Mk. 2A will decay 1.372 pec for a full 20 impact damage absorbed. Thus you not only save 5% on your decay bill, you do so with an extra point of protection too. Another good example is Goblin+Armor Plating Mk. 5B. For 24 Impact protection you pay 1.646 pec. If you were using just an armor, for 24 Impact protection you'd pay around 1.943 pec. So the armor+plate combo saves you 15% of your decay bill!
Note the discussion in the first section, you should avoid using plates that cause you to be overprotected. Both the armor and plates are offered the full damage by the mob, so if you're overprotected using plates will increase your decay.
Effect of Durability
Whilst good choice of armor for the mob you're hunting is much more important than durability generally, durability does have an effect on your decay. For unlimited armors, an extra 1000 durability decreases your decay by 1% (for the same damage absorbed). For limited armors, the effect of durability increases by even more and also increases for larger hits. A good rule of thumb is that a limited armor will be about 16% more economical than its unlimited counterpart. However, this will increase for the limited armors with really high durability (eg. for 90 damage absorbed, Rutuba (L) is around 25% more economical than Angel). When comparing two limited armors, a good rule of thumb is that a difference of 1000 durability represents about a 2.5% saving in economy. This however increases with damage absorbed (for 90 damage absorbed its more like 3.5%) - note that this only applies to limited armors.
Some example graphs:
*Note that these are theoretical values, as the most an armor can ever absorb is its maximum protection, given that all relevant damage types are offered.
Entropedia creature vs. armor
These effects have been coded into Entropedia. If you haven't encountered it already, I recommend trying out the Creature Maturity Levels chart. You can use the options to select any armor and mob and it will tell you what your average damage received will be and what your average decay will be.
One thing to bear in mind is that not all mobs have the correct damage proportions on Entropedia. This is an area of ongoing investigation.
Effect of decay on protection
Limited armor sets provide the full protection they offer, regardless of how much the armor has decayed (until its broken).
Unlimited armor sets lose protection as they decay. The current assumption (tested by Witte as documented on EF:How Armor Works pg.2), but maybe requiring some checking following this VU) is that the protection offered is in proportion to the amount it has decayed. So a piece of armor that has decayed 50% is thought to provide only 50% of its full protection. It will also decay less, continuing to obey the formulas above based on the actual damage absorbed.
As long as you repair your armors after a hunt this doesn't generally have much effect. However, it can impact some armors with low tt value quite significantly. Its well worth being aware of if you're using something like Pixie for instance as it has a very low tt.
Ongoing research
I'll also outline some areas that require more research. Anyone who wishes to help should just jump into the relevant threads I've linked to. All help is much appreciated!
Note on Block effect: Hunting a mob with 100% cold damage according to entropedia (Thorifoid shaman), using armor with cold protection and adjusted 5b, triggered the block effect in the plate even it doesn't have cold protection. (Need to be confirmed, other mobs in the area may have managed to do damage)
Distribution of attacks
Its fairly well-known that mobs tend to favour hitting certain armor pieces more than others. For instance, your Harness will generally get hit more than other pieces.
Since the introduction of foot guards this distribution has clearly had to change. Also, Marco has stated that different mobs favour different parts - suggesting that a mob that crawls along the ground will hit lower parts of your armor more than a normal mob for instance.
Some early testing has been done by Oleg and TimUnleashed (see here), however there's plenty of data and analysis left to do.
Sources