As you play you gain levels in each skill or task that you perform (ie cutting wood, shooting bow, running, etc.)

As mentioned above, when you die you drop all your carried belongings, but you also lose 5% of ALL of your skill xp you have collected so far.... you lose 5% of every skill, so try hard not to die... Death inevitably happens but the point is to be prepared for ANYTHING, at all times because the game can try to kill you at every turn.

Escape is ALWAYS a viable option... If you see you are about to be overwhelmed, run away and live to fight another day.