Physical Damage is a type of damage in Titan Quest. It is the basic type of damage, dealt by all types of melee weapons (swords, clubs, axes, spears) as well as bows, shields and most weaponless attacks. In item tooltips it is usually referred to simply as Damage. The item modifer +XX Damage or +XX% Damage is always Physical Damage, while +XX% Total Damage increases all types of damage.
Physical Damage taken is reduced by Armor: When a hero, pet or monster is attacked with physical damage, a part of the target's body is randomly chosen (for the hero, the chances to hit are 40% torso and 20% for each arms, legs and head). If that body part is protected by some piece of armor, the amount of physical damage is reduced by 66% of the armor value of the piece of armor. It the body part is not protected, the target takes the full amount of physical damage. See main article Armor for details on this topic.