The Defence Thread

I did a search not long ago, and found no results speaking of the way defence works, so i was hoping that someone would be kind enough to answer a few questions regarding it.

1) What exactly does defence do? Is it damage reduction like many console-style RPGs? Or does it affect enemies chance to hit like many MMORPG's on the net?

2) What's the difference between actual armor, and "damage reduction" (ie. Ascalon armor)

3) What takes a higher priority when deciding what kind of armor to use? Attributes, Armor, or Damage Reduction?

I may put up more questions soon, thanks in advance, everyone.

Game Mechanics

***Edit*** Okay I'll make things simple.... Ascalon Armor vs. Wyvern Armor, which reduces physical damage more?