There seen to be a lot of people running about stark naked attacking and killing people with weapons and armour fairly easily. Is this because weapons/armour are only cosmetic hindrances to fighting prowess? Are they using some exploit? I find it fairly disconcerting when some naked bald guy is beating the crap out of me with his fists as I swing two axes at him to little effect. How does combat work in this game?

Btw I'm having great fun . Just a little confused about combat.