See Health and Damage for more information.
Armor does not stack; when two pieces of armor overlap, only use the highest rated piece. That means that wearing two kevlar jackets does not provide four dice of armor, and wearing three does little more than make you look like a complete idiot.
Class One (reinforced clothing): 1 Armor Point; no penalty
Class Two (Kevlar vest): 2 Armor Points; -1 Armor Penalty
Class Three (full riot gear): 3 Armor Points; -2 Armor Penalty
Class Four (full plate): 4 Armor Points; -3 Armor Penalty
The Armor Penalty is subtracted from all active dice pools (those which involve significant bodily movement, including Strength-based attacks such as Melee but not including firearm and missile attacks if the character takes no other actions).
Soak and Armor Rating
A number of damage dice equal to your Armor Rating are automatically "soaked", and are not rolled. If your character is getting slashed for 6 damage dice but has a Kevlar vest on, the enemy rolls 4 dice of damage. Armor cannot reduce the damage roll below a single die.
If a combatant can soak damage due to different abilities or items, the abilities or items usually do not stack. Typically, general categories don't stack. Items do not stack. Spells and other forms of augmentation do not stack with the same type of bonus unless it provides an entirely different type of effect. (For example, Hardened Flesh of any sort will not stack with any other kind of soak except a deflection bonus.) Magical Augmentations of any source do not stack.
A character who suffers 4 levels of Damage from a single attack (not attack sequence) is likely to suffer permanent injury or maiming.