Physics are a part of the combat system, but there's much more going on under the hood than a pure physics simulation. I don't believe that a pure physics simulation could sustain a game this long. I think people would get bored, or they'd find one thing that works and exploit it. We've done a ton of work to prevent exploits. For example, if you hold your arm out and wiggle your wrist quickly, not only does it not count as a hit, but you're going to trigger an enemy attack that disarms you.
I'll copy what I've posted elsewhere about combat:
There are several enemy types throughout the game. At the most basic level they either have runic shields or they don't.
An enemy without runic shields is vulnerable and can be taken out however you want. Their health is represented by the green bar above their head.
An enemy with runic shields (the blue bar above their head) has to have them removed before they are vulnerable.
To make the shields vulnerable, you have to parry an enemies signature attack with velocity. Signature attacks have a blue visual effect around them. It is not enough to just block them.
Enemies also have a red bar above their head. This is their rage meter. Filling it up is the only way to trigger a signature attack from an enemy. You can fill it up by blocking attacks, dodging lethal attacks which have red visual fx and are unblockable, or by attacking the enemy with certain weaponry, like ranged weapons.
If you're hit with a signature or lethal attack it disarms you. Weapons can immediately be re-equipped from the location that you had them slotted on your avatar - we don't expect you to look for them on the ground.
Once a signature attack has been parried, you have a brief window to strike the enemy to remove on of their runic shield charges. Enemies can have up to 5.
Attacks that cause status ailments, like poison, bleed, burn, etc. will damage an enemies green health bar without removing their shields, but you can't kill enemies this way.
Each playable hero has upgrades to their signature weapons that unlock additional combat abilities. These require charges to use. Charges can be earned by killing enemies or via a special potion. Some of the more powerful weapon abilities will instantly put enemies in a stun state, allowing you to quickly dispatch their shields. Also, later weapon upgrades can remove two shield charges at once.
The intent of the whole system is to require the player to go toe to toe with the enemies. Blocking, dodging, and parrying is key to success. Crafting upgrades makes you much more effective if you know how to use them.
We've done a lot of work to prevent and punish exploits. You can't just wiggle your arm and be successful. If you try that not only will it not work, but you're usually immediately disarmed.
There are lots of items that can buff you and your animal followers in combat.
We realize that not everyone wants an experience this deep and may just want to experience the story / world / puzzles. We have three difficulty settings. The lowest one removes the parry requirement. You can go pure hack n slash on the shields this way. The highest difficulty requires more velocity on parries, speeds the enemies up, and increases their damage output making for a more difficult experience.
We also give you the option to turn off the enemy indicator UI if you prefer immersion and want to play based on visual tells alone.