Armor determines the mitigated portion of any received physical damage and is split into three separate modifiers, one for each physical damage type: Slash, Pierce, and Crush. When a piece of equipment provides Physical Armor, it means that it is providing that amount of Armor to all 3 values. Armor is expressed by a value that ranges between -2000 and +2000, which is in turn converted to a -85% and +85% modifier by a non-linear formula. Armor mostly comes from equipment.
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The value of 500 is the Armor needed to reduce any incoming physical damage by 50%.
It's not possible to reach 100% damage reduction for physical damage.