Armor acts as DR. Your shot's penetration is compared to the armor hardness rating. If the pen value is lower than the hardness, the damage is reduced. This is why rails deal full damage. No ship has a hardness greater than the rails' penetration.

I don't think anything bypasses module reinforcement, which also acts as DR. But there is another thing at play here and it is hull breach chance. Hull breach attacks deal damage to the module, but still reduced by any module reinforcement. Add resistances to the equation and it's even more muddled. I don't know how this works really