For most players, this matters very little other than a lingering death-feeling. Hardcore characters handle death a little differently, and Death Points have a long term consequence.
Hardcore and Perma-Death
Eventually, after many less than permanent deaths, your Character can experience permanent death, or "Perma-Death". This means that, while their character records will exist in history, you regain that character-slot and will not be able to play them again.
Why would I do this?
Answer 2) Immediate and long term gratification. One extra Knack upon character creation. That's one more special bonus than cautious non-hardcore players can ever have.
Answer 3) Death Points don't hurt but the once. No penalty for recently accrued Death Points.
How do I get Death Points?
Death Points are accumulated with every character death. That means every time you're killed in a duel, encounter, desperate escape from prison or any other HP-draining activity, you gain a Death Point.
Duels in which you are killed can result in a bonus Death Point (2 total) if the person who defeated you chooses to be unkind with your defeated body. Alternately, if they choose to be especially compassionate, you can dodge the Death Point entirely.
What does a Death Point do?Non-Hardcore characters who wrack up death points suffer a serious but temporary Attribute and AP % penalty, but each point expires after a week. For protection from multi-murdering trolls, a player stops wracking up Death Points if their penalty ever reaches 100% or if they equal their level in current Death Points.
Hardcore characters on the other hand do not suffer this penalty, but their Death Points do not expire. After accumulating 200 Death Points, you start rolling against a % chance of perma-death. This chance increases by 2% per point after 200. Therefor at 201, your chance is 2%. At 250, your permanent death is assured.