Defense and armor allow a fighter to get hit without taking damage. Defending mode is activated by pressing Defend while standing, and makes the fighter immobile for a short duration. Armor is automatic, always kicking in unless it has recently been worn down, but is only available to Louis, Knight and Julian.
Pressing Defend while in standing position causes one to enter defense mode for 13 frames, or 0.43 seconds at the normal frame rate. In this state, one cannot move except to turn left and right, and attacks that hit head-on have no effect but to renew the 13-frame defense duration and deal a tenth their normal damage (rounded down). The only way to leave defense mode before the 13 frames are up is to do a special move or die.
Certain characters also defend during parts of certain moves: Monk's run attack and palm, Firzen's explosion, and Bat's speed punch. Interrupting these moves is a little more difficult than most, for it takes multiple hits (or one high-bdefend hit) to break their defense.
The way it works is that each fighter has some amount of defend points (DP) keeping track of how much more they can defend, and each attack has an intrinsic quantity called its bdefend determining how easy it is to defend against. Normally DP is 0, for it decays by 1 each frame, and it is never negative. Whenever a fighter defends an attack, his DP increases by that attack's bdefend. The higher this sends the DP, the more likely it is that the fighter will stumble back, vulnerable, for 9 frames. Overwhelming someone's defense so that they stumble backwards is called breaking their defense.
DP is also affected when a fighter gets hit (and is not defending), which unconditionally sets their DP to 45. This makes it so that defending is not so useful when one is already being hit. One's DP does not decay while one is being grabbed or Thrown, or if one was hit in the current or previous two frames.
Attacks with bdefend over 60 (the only examples being Deep's run attack, Big Bang and Soul Bomb) ignore defense entirely, unless the bdefend is less than 100 (Strike) and the one doing the defending has armor, in which case their defense gets broken. Some attacks don't technically need to hit their target to deal damage, so they can't be defended against: these are Whirlwind, Throw and Flute.
Jan, Knight and Firzen have a special sort of defense on top of the sort described above. If they are hit head-on by any sort of projectile while defending, the projectile will get hit by their shield, possibly getting deflected and converted to their team. This action does not affect their DP nor renew their defending duration. These shields also make contact with tied-up criminals, icicles and heavy objects on the ground.
Unfortunately, these shields cannot be used to deflect a continuous stream of projectiles, because they go away after 13 frames and then the user is vulnerable while she is pressing Defend to bring the shield back up. Knight can possibly let his armor protect him during that one frame. Projectiles can still sneak through to the normal defense, by approaching diagonally or by being shot from so close that they spawn inside the shield's protective barrier.
In addition to the ability to defend, Louis, Knight and Julian have armor, which is basically perpetual non-directional defense. Louis' armor is the weakest and most limited, taking effect only in certain situations against certain attacks, and Julian's is the best. There is a certain strange interaction, likely a bug, between armor and defense: when one of these characters is hit from behind while defending and the hit is blocked by his armor, he will look like he just defended against the attack, and his defending duration will be renewed.
Louis' armor only works as long as his DP is less than 2, and it is only on when he is in the standing, walking, running, jumping or dashing positions. It is not on for the brief transitions from running/jumping/dashing to standing, but is on for the transitions from walking to jumping or running to dashing. It does not block burning attacks, freezing attacks, Super Arrow, Disk or Soul Bomb. Since it only works while his DP is less than 2, and every (non-elemental) attack has bdefend at least 5, it's only good for blocking one hit (with the sole exception of Louis' very own Thunder Kick, whose kicks Louis' armor usually manages to block two of). For this reason, it is often called 'level 1 armor'.
Knight's armor is like Louis', but keeps working for all values of DP up to 15, and it isn't limited to when Knight is standing, walking, running or jumping. Since it can block two consecutive weak hits (unless the second one comes immediately after the first), it is often called 'level 2 armor'.
Julian's armor is like Knight's, but it can also block burning or freezing attacks.