Armor mitigates the damage you take from all hits, but has no effect against Damage over Time.
The percentage of damage mitigated by armor depends on how much armor you have and the level of the area you are in.
The same amount of armor provides less mitigation at higher levels, and the percentage of damage mitigated cannot exceed 85%.
This is according to the following formula, where x is the amount of armor you have and a is the area level.
Armor is 70% as effective against non-physical damage.