ScarterraD10 has three kinds of damage: bashing, lethal, and persistent. But the overwhelming majority of the time, players characters are dishing out and receiving lethal damage.
This optional rule takes out a bit of the lethality of lethal damage.
If a character is wearing armor, or has an armor like ability, than every time they take unsoaked damage, one level of lethal damage is converted to bashing damage.
So if a character would normally take five levels of lethal damage, instead he takes four level of lethal and one level of bashing damage.
If a character would normally take three levels of lethal damage, instead he takes two levels of lethal damage one level of bashing damage.
If a character would normally take one level of lethal damage, he would instead one level of bashing damage.
Even though bashing damage is received, the character does not get to soak this damage with his/her Stamina. Stamina is only used to soak bashing damage that is purely bashing damage before conversion.
If you invoke this optional rule, you should apply it to PCs and NPCs alike, not just PCs. I believe this optional rule is better suited for long-running chronicles with a sandbox style than it is for short-term campaigns with a railroad style.
Disadvantage: This is one more thing to keep track of.
Every time a PC takes damage, that player needs to do a little bit of extra math and bookkeeping to separate his damage by type on his character sheet. It doesn't sound like a big deal, but the more moving parts you add to a battle, the longer it takes to roll out.
Advantage: More Realism
PC or NPC, if a character gets hit by a small number of very high damage hits, they are probably still likely to die. But if a character is hit six or seven relatively small hits, they are probably going to be knocked unconscious rather than killed outright.
In real historical medieval battles, this sort of thing happened all the time, especially with highly armored opponents. This is why more knights died by a dagger than by any other weapon. An armored warrior would be staggered or concussed by several attacks mostly but not entirely stopped by his armor, then the warrior would either be taken prisoner or they would be finished off with a dagger shoved in the gaps of their armor.
Gray Area: Less player character death
It's not impossible for player characters to die in combat, especially when you consider that if you take enough bashing damage, bashing damage converts to lethal damage, but if you impose this optional role, it's a lot harder for a PC to die, especially if they are fighting mooks or random nobodies who focus on quantity attacks over quality attacks.
Some players find the safety net comforting, other find it a killjoy...as in they take joy of characters being killed. Some players are very protective of their characters and other characters need the looming possibility of death to make their victories feel that much more meaningful when they know they are facing death.
Gray Area: Prisoners' Dilemma
Implementing this optional rule means that a fair number of NPC enemies will be knocked unconscious rather than killed. Mooks only have five health levels instead of ten, and optimized PCs tend to hit pretty hard so survival is hardly guaranteed but you are probably going to have some survivors after a typical battle.
Usually, players like to play heroic characters. Heroic characters usually give quarter to defeated enemies, and this is not always easy. At the very least, prisoners need medical attention, food, and water. If the prisoners do not hold the rules of an honorable surrender as sacred, than they have to be very carefully guarded.
As a Game Master, sometimes you just want to move on to the next phase of the story, without being bogged down by the players and PCs having a lengthy discussion "What do we do about our prisoners". Some players might find this tedious or annoying to deal with.
On the other hand, some players and Game Masters enjoy this sort of thing. Interacting with prisoners is a good roleplaying opportunity.
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