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Armor reduces Physical Damage taken.

Armor mitigates damage in a logarithmically decreasing way. The formula is a little complicated, but a rough hand estimate is 100 Armor lets 1/2 the damage through, 200 Armor lets 1/3 through, 300 armor lets 1/4 through, and so on. An alternate view point is that is borne out by this formula is that each point of Armor has the same effect as increasing your final Health by 1%, which is also why it's generally a good idea to build a mix of Health and resistances.

Damage Reduction Percentage = (0.01 * armorPoints) / (1 + (0.01 * armorPoints))

so if you had 200 Armor, you would block (0.01 * 200) / (1 + (0.01 * 200)) = 2/3 or 66% of incoming Physical Damage.

here are more examples

1 armor = ~0.9% reduction

10 armor = ~9% reduction

50 armor = ~33.3%

100 armor = 50%

200 armor = ~66.6%

500 armor = ~83%

1000 armor = ~90%

Items with Armor

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