>If a damaged piece of equipment is the target of a something
>that would damage again, will it continue to degrade? Will it
>eventually break?

Yes, it will likely break. To get specific, if something is already damaged, and you fight someone/something that uses the DENT skill on you, if that armor item ends up getting hit with the denting blow, it may crumble and become unusable. It will then sit in your inventory and not be wearable until you have it repaired.