It doesn't, for example against the Richdrake boss on my first character I was wearing full dire armor on a tenacity build and he was hitting me just as hard as he was hitting my boyfriend using a full damage build and using the Soft set instead, he had 2 less defense then me, and 0 tenacity versus my 22 tenacity, dragon hit me for the exact same amount of damage. IT's just not a good stat, or not working. Going full DPS really makes the game easy, I couldn't beat the dragon on normal difficulty using a tenacity build with dire armor at level 20, I came back on hard difficulty and beat him at level 14 in soft armor with 1 tenacity, lol. An absolute steamroll.