Durability affects the way tools/weapons work. As a tool/weapon loses durability it will do less damage than it did originally and if it has range it will lose accuracy as well. Tools/weapons will start with 100% durability and will deteriorate the more the player use them, going through stages that are displayed in chat, these being: Under 80% "Your (item) is no longer as excellent as it was." (100% damage/accuracy) , Under 45% "Your (item) is getting worse." (89% damage/accuracy), Under 23% "Your (item) is already damaged." (80% damage/accuracy), 0% "Your (item) just broke. Repair it using a repair table." (25% damage/accuracy). Durability does not apply to all items as some like the Spear for example are not affected by it.
Once a weapon/tool loses durability, the player can repair it at a Repair Table by using the primary ingredient used to make the item with or by using a Primitive Repair Kit/Goblin Repair Kit if it doesn't have a recipe. The less durability an item has the more resources it will take to repair it but if an item is made out of more expensive materials most of the time it will not break as much per use.