Damage is a survival metric.
The body of a character in Stationeers consists of multiple organs, different kinds of damage will damage different kinds of organs. For example, fire or toxins will damage the lungs, and as such the oxygen supply to the brain will be restricted, and the brain will eventually start taking damage.
The most common problem with kinetic damage is that it will damage the suit of the character, which can restrict the oxygen flow, or subject the character to high heat or pressure from the outside atmosphere.
There are plans for many ways to heal the characters' organs, as well as eventually replacing individual organs through surgery. For now, there is a magic Heal Pill item that can be made through Chemistry, it will heal all of the character's organs.