The Reasoning

Many attempts at creating HP levels focus on percentages of your Max HP. Saga takes a different tack, instead making you drop a level whenever you take more than a certain amount of damage. The reasoning behind this is that, whether you are actually hit or avoid it through luck/skill/divine intervention (the rules allow HP to represent any of these, as well as simply how much punishment your meatbody can take), a bigger hit is harder to take, and thus more exhausting.

This has very good effects on the 'death spiral' that is endemic to HP level systems, wherein you take a good hit and gain penalties, which makes the next hit land on you easier, which gives you more penalties, until eventually you die. Percentage-based levels make it impossible to recover from the spiral until you receive actual healing. Thus, when you get close to actually dying, you're really really likely to die because of your huge penalties.

Saga, because it decouples the levels from your actual HP, avoids this. You can be near your full HP and yet be absolutely exhausted and near unconsciousness, or at nearly 0 HP but still be completely active and ready for action. This makes the death spiral a local effect that is limited to the current encounter, rather than being possibly persistent across a day and many battles.

The Rules

Your damage threshold is simply your 10 + Fort save bonus + the maximum DR roll of your armor. Permanent DR increases such as from Armor Mastery count towards your Damage Threshold, but temporary increases such as from the Defensive Roll challenge do not.

Natural DR, such as DR 5/silver, is not figured into your damage threshold.