Is there some aspect of this or the math behind it that I do not understand? If it reduces the damage that you take, that is good, right? Or does it only reduce damage to me if I would otherwise get a mortal attack against me?
No, not everything. For example: Ring of Elements, arguably Ring of Tenacity, Ring of Wealth while ascending, Sandals of Nature, Alchemist's toolkit, for some reason the Amulet of Yendor, blocking enchantment (it's a joke, it's trigger chance is really rare and it gives low shield for a small amount of turns. If you upgrade the weapons to make it more effective you won't need the shield, enemies just die) and all the shards (free achievement or gold)