It reduces damage received by a maximum of 20% with the value determined by the current percentage of maximum carry weight; for example, carrying 20/100 weight will provide 80% of the bonus. Carrying 50/100 will provide 50% of the bonus.
The damage reduction based on armor weight appears to be inverted, as the damage is reduced more the heavier it is instead of lighter:
20% while wearing light armor
33% while wearing medium armor
50% while wearing heavy armor
The effect also ignores glyphwords which change the wightclass of the worn gear. Meaning wearing Bear School Gear enchanted with Levity which changes it into light armor will still give 50% damage reduction, while wearing Cat School Gear enchanted with Heft will still only give 20% reduction.