There are five elements used which involve damage:
Damage is calculated separately for each. It is important to understand resistances and how the are applied to damage.
In Sacred 2, resistances (like damage) are an absolute figure, for example, 500, not 50%. They reduce damage by the following formula:
damage taken = damage dealt * (damage dealt / (damage dealt + resistance))
So if the resistance is the same as the damage dealt, you will take 1/2 of the damage (500 * (500 / (500+500)) = 250 damage taken). If the resistance is twice the damage dealt, you'll take 1/3 of that. As previously mentioned, this damage calculation is run for each resistance separately and then summed up and a few other steps are taken and the end result is removed from your health.
Damage calculation from start to end (assuming a successful to-hit check is made):
1) Damage reflection is checked. If the target has a buff or CA that can reflect damage, this is checked to see whether it's successful. If it is successful, the target takes 0 damage and the damage calculation is run for the aggressor (theoretically this should mean that the damage could bounce back & forth if both the target and aggressor have high % chance to reflect).
2) Resistance is applied with the above formula.
3) Damage reduction is applied. This can come in several forms, either from item mods (conjecture), skills (Toughness & Warding Energy Lore if you are using an energy shield) and Combat Arts (the Temple Guardian's T-energy Shroud & the Seraphim's Warding Energy/Divine Protection)
3a) If you are using an energy shield (T-energy Shroud & Warding Energy/Divine Protection), some or all of the remaining damage will be taken off the shield energy and the rest will be taken from the target's health. T-energy Shroud takes 60% of incoming damage to the shield (therefore only 40% is applied to the Temple Guardian's health), Warding Energy takes 50% of incoming damage to the shield & Divine Protection takes 100% (therefore it grants immunity from damage until the shield energy runs out or the CA ends).
4) Remaining damage is applied to the target's health.
Energy Shields. There's a very good article on the Wiki here. Energy Shields have 3 stats, shield energy, damage mitigation/reduction & Absorption Warding Energy.
Shield energy decreases as damage is taken & if it drops to zero, the shield stops functioning. Shield energy regenerates outside of combat (though the Temple Guardian's T-energy Shroud has a modifier that gives in-combat regeneration), and is increased with higher Combat Art levels and the skill Warding Energy Lore. Damage mitigation reduces the damage taken (after resistances are applied, but before the damage is applied to the shield, or player health), it's static, though it can be increased by an item mod (Block Warding Energy +x), increased Combat Art levels and the skill Warding Energy Lore. Absorption Warding Energy is fixed for the two buffs (T-energy Shroud & Warding Energy), but increases for Divine Protection. It also exists as an item modifier and this can be used to increase the total % of damage that is diverted to the shield energy, rather than player health.