Here's a comprehensive list of everything in the game that provides Damage Reduction. Damage Reduction directly reduces the amount of damage taken in combat by subtracting its number from the damage, differentiating it from Damage Absorption, which is a variable in a formula which reduces by a percentage the damage taken. Damage reduction is applied before Damage Absorption and Elemental Resistance.
May have any number of other effects, see El Vibrato helmet for details
Notes
Damage reduction occurs before Damage Absorption. In practice this means damage reduction is modified. i.e., for X% damage reduced expect damage absorption to be X% less. For example, if you have 50% damage absorbed and would take 100 damage, the absorption reduces this 50 damage. If you throw 20 damage Reduction on top of that (which reduces the damage by 20% in this case), the Absorption will only apply to the 80 damage remaining, thus reducing only by 40 (which is 20% less than the 50 it would have reduced).
It is not possible to reduce damage below 1 (monster fumbles and misses notwithstanding).
