What does it mean when something deals mental damage? Is it still taken off the health bar or is that like an attack against the poweer pool of a caster?
Mental damage is a damage type. Like Heat Damage or Slashing Damage. Different things have different weaknesses and strengths to different damage types. example: Undead have a weakness to divine damage, so they take a bit more from it, and are strong to piercing damage so they take a bit less. The over all difference (so far in my experience) is never enough to cripple you against a foe however. But to directly answer you, Mental damage hits and takes away life, not energy.
