Components and multiplicative layers
The standard MMO damage formula is: final damage = (base + scaling * stat) * crit multiplier * (1 - armor reduction). A sword has a base damage of 10. Your character has an attack power stat of 100, and the sword scales at 0.8x, so you add 80. Your crit chance is 20% and crit multiplier is 1.5x. An opponent has 50 armor, which reduces damage by 20%. Your hit deals (10 + 80) * crit_value * 0.8 = between 72 and 108 damage per swing. The formula's power is that each component can be tuned independently: you can nerf armor reduction without touching the base damage, or reduce crit multiplier without affecting base stats.
Why formulae matter to game balance
A change to one component has cascading effects. Adding 10% armor reduction sounds small but might tip a fight from unwinnable to balanced. Reducing scaling by 5% makes endgame gear less valuable, slowing progression. Designers use the formula as a spreadsheet to predict the impact of balance changes before they hit live servers. A formula that is too complex becomes unpredictable; one that is too simple leaves no knobs to tune. The best formulas have 4-5 components, each tied to an itemizable stat or a meaningful player decision.