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You lose 5% of all current skill levels with each death. So if a skill is 100 you'd lose 5 lvls. If a skill is 20 you lose 1 lvl. So the higher lvl the more painful. After each death you have a ten minute window where you can die again without losing levels.
Fortunately this game doesn't rely on skills, our gear is much more important!
Skills are very important. Each skill lvl with a weapon increases damage by 1%, so you end up dealing double damage with the same weapon. Bows draw 1% faster until you can instantly fire at full power (which also uses much less stamina). Run improves your actual speed significantly from 24 to 3o km/h, Jump increases jump height up to 40%.
You would do OK in the plains with max upgraded padded armor and dark metal weapons & shield and zero skills, but probably wouldn't survive long with leather/wood gear and all skills at 100. You could harvest all the fine & core wood you need with a metal axe and zero skill.
Skill helps but we're not going to be crippled by a few deaths.
Skills only matter a lot if you are nutz and level them to insane levels you won't get to just playing normally, or if you use cheat commands to set them all up to max. I for one am not gonna spend 500 hrs jumping for no reason and shooting at rocks and trees.