I don't know about the specifics of the health/armor system, but I pulled these bits from various interviews:
Each vehicle also has experience and is named, for ease of identification, as well as a stress status; if they get too stressed, they’ll attempt to flee or at least retreat. “R.U.S.E. was more boardgamey; this is like if you are building an Airfix model, you want it to have and use all the characteristics of the real thing, but very simple to play with.” Is this more for hardcore gamers then? “We want the game to be really easy to play with, for all the units.”
Le Dressay demonstrates on an unfortunate enemy T-72 that a recon unit has spotted. The Abrams has to move through a hedgerow to get a clean line of sight to the T-72, but as soon as it spots it, it stops moving and fires, stunning the enemy tank with a direct hit; “it is like, one of the crewmen has been killed”, says Alexis. “Even if I can’t penetrate the armour, I can distress them a lot, making them retreat and destroy them finally.” The experience of the Abrams crew speeds up the reloading process (as well as aiming and repairing) and it gets its second shot off whilst the T-72 is attempting to turn and retreat, destroying it. We could have forced the Abrams to shoot earlier, without sighting the tank, but it would have been very inaccurate. Also, if we’d left a stunned or malfunctioning tank alone, the crew would have themselves taken the time to repair the problem, be it a loose track, fuel leak, or general malfunction.
Should you make a critical hit on an enemy tank, you can even temporarily disable one of its tech components -- such as a firing computer. Soviet tanks are not very heavy on tech so you might disable a component in a few more advanced models, but making a critical hit on the more advanced NATO tanks can disable them for quite a while.
When a shell hits its target, the location of the hit, momentum, range, and a smattering of random chance determine whether a crew member dies, slowing down the inner process that he was responsible for, or a mechanical part, such as the fuel tank, the gun stabilizer, or the tank's internal ammo storage are damaged, making that part of the tank useless until repaired.