it increases the effective hp by 5%, which means that each hull repair ability becomes more effective.

example:

one unit has 500 hp, 0 armour and gets repaired by something that does 499 hull repair
other unit has 500 hp, 10 armour and gets repaired by something that does 499 hull repair.

In both cases the ships would be fully repaired, but the repair in the first case only repaired 499 effective hp while the repair in the second case repaired 748.5 effective hp.

Just, FYI... It's damage reduction. It's just calculated as effective hull increase.

Take armor value, multiply by five. Armor=1, so 5.
Damage gets reduced as follows.

DAMAGE*(100/105)

In this example, the effective mitigation is around 4.8%. To calculate actual value of mitigation, multiply armor value by five, add it to one hundred, and divide 100 by your result. The inverse of that value is your effective mitigation.

Ok, I know, it's a lot easier to just think of it as an effective hull increase, but I think it's important to realize that it is damage mitigation, not phantom hit points. Percent based damage mitigation, in every game it's every been in, has always 'effectively increased hit points by a percentage.' It's not a unique concept, it's just worded differently this time around.

Yay math!

just to make it clear, I know how the armour mitigation works, but you dont need those calculations if the end result is just an increase of 5% to the effective hp.

to explain effective hp.
enemies do 5 dps, it takes 20 seconds vs a unit with 100 hp and 0 armour = 100 ehp.
upgrading the armour by 1 the unit has 105 ehp(100*1.05) and it takes 21 seconds (105/5).
upgrading the armour to 2, the unit has 110 ehp and it takes 22 seconds.

mitigation calculation (pesky) would result in the same thing:
0 armour:
5/1
100 (hp of ship) /5 (damage after no mitigation) = 20
1 armour:
5/1.05 = 4.761
100/4.761 = 21
2 armour:
5/1.1 = 4.5454..
100/4.545454 = 22.


Why effective hp is a better calculation:

assuming theres n different sources of damage against the target and you want to know how long it will take to kill a target per each damage source(not the sum, just how much each one individually takes)
EHP route:
calculate effective hp as 105 (100*1.05)
now you need to divide the 105 by the n sources (105/x, 105/y...) .
n+1 calculations for n different sources of damage against one target.
Mitigation route:
divide each of the n weapon sources by the appropriate thing(y/1.05, x/1.05) and then divide 100 (original hp) by each of those results.
n*2 calculations for n different sources of damage against one target.

ps: my examples are just to compare calculations and dont take into account shields/shield mitigation, weapon/armour types and the like.

Ok, so a 30 dmg laser shot to a 12 armor gauss defense would make 18.75 dmg. Does the game apply that as 18.75, 18 or 19 dmg then?

And oh how annoying that gets when you have 99.99999 crystal, and its showing as the 100 you need for that next research upgrade...