For the purposes of clarification, Defense Rating and Defense Skill are not the same. Defense Rating generates Defense Skill, but it takes several points of rating to actually get a skill point. This is important because defense rating is the stat that is typically found on items.
2.4 Defense Rating = 1 Defense Skill (at level 70)
The rest of this article is referring to the Skill level, not the Rating level. Keep in mind that any time you see Defense Rating on an item, it will have roughly 40% of the strength of actually adding Defense Skill.
Each point of Defense increases your chance to Block, to Dodge, and to Parry incoming attacks. It also increases the chance that you will be Missed, and reduces the chance that you will be Critically Hit, all by 0.04%. This equates to 1%(each) for every 25 points of Defense.
The protection against Critical Hits that Defense provides is calculated slightly differently, and is based on the difference between your Defense skill and the enemy's Weapon skill, instead of being strictly based on level. For each point of Defense greater than the enemy's Weapon skill, your chance to be Critically Hit is reduced by 0.04%.
It is important to note that based on these calculations it is possible to raise your Defense skill to a point where you will be passively immune to Critical Hits. For example, a Lv70 player will need a Defense skill of 490 to become immune to Crits from an enemy that is Lv73 or below, (barring certain rare exceptions.) However, a druid in bear form with 3/3 talent points in Survival of the Fittest only needs 415 Defense skill to become critically immune.
Similiarly important is being able to remove the chance to be hit by a Crushing Blow. A crushing blow can occur on attacks made by a higher level NPC against a player, and for a normal raid boss, there is a 15% chance of landing a crushing blow. The bonus damage from crushes can be cumulative with crits. Although defense skill does not directly help with removing chance to be crushed, if you have more than 100% passive mitigation between blocking, dodging, parrying, and being missed, you will never face a crushing blow. Although it is essentially impossible to get 100% passive mitigation, certain classes have abilities like Shield Block that can artificially raise their threshold for avoidance. See Combat Events for more details.