It was difficult to see because it didn't feed into damage reduction at all. In XCOM Defense is what you get by being in cover, AKA reduced chance for enemies to hit you. Let's say you have an alien who has a 75% shot on your trooper who has a 0 defense stat. Give him a 5 defense stat, the alien will now have a 70% shot instead. It's a little weird because we're used to video games where defense means "you take less damage" but in XCOM it means "you get hit less often".