The health system in KCD is interlinked with the protagonists available stamina. You take a hit in combat, not only do your overall life points diminish, but so to resultantly does your available stamina. Stamina is utilised for both attacking and defending in melee combat. Therefore the more damage you take, the less total stamina you have to be able to perform blocks / counters / attacking strikes etc.
Obviously there will be defensive benefits and buffs afforded to the player by various armours, and protective layers (potentially some potions or concoctions as well). None of which will make you invulnerable, however they will protect your health and stamina from forms of melee and ranged attacks.
The proficiency of these armour types will vary, for example; full plate will offer great protection against sword based attacks. However it will not prevent you from being damaged from any bludgeoning type melee attacks, reliant on sheer blunt force trauma.
Anyway, hopefully that gives you a little bit of an idea of how the health and stamina system ties in with KCD’s game mechanics. I’m sure others will have more to add