When certain parts like the reactor are destroyed they explode and damage their surrounding. The damage applied to each tile from the center of explosion is determined by the following equation:
wherein : is the distance from the center of explosion, : is the RadiusVsOperational, : is the DamageVsOperationalFalloff, and : is the DamageVsOperationalPerTile.
Armor can reduce the damage effects of explosions by 75% such that only 25% would reach the parts behind it. For example the first armor layer would reduce the damage from a reactor explosion to 423. A second layer would reduce it to 73.
As demonstrated here the explosion from a reactor which did major damage to half the ship. This can greatly reduce functionality and possibly start a chain reaction doing more damage. The armor took major damage but other tiles on its side where only moderately.