Nidhoegger: The difficulty setting directly influences the game's RNG, however. Bioware confirmed a while ago that it is slanted to roll better for PCs on easier settings and better for NPCs on harder difficulty levels.
That's referring to base weapon damage, see the link I posted. Say the PC and the enemy each have a longsword (which does 1-8 damage).
On Very Easy, the PC will always get an 8 and the enemy will always get 1-2.
On Easy, the PC will always get 5-8 and the enemy will always get 1-4.
On Normal/Hardcore Rules both the PC and enemy will get 1-8.
On Very Difficult the PC will get 1-8 and the enemy will get 2-16.
It does not affect spell damage or bonus damage on weapons or many other things.
This is all referring to the RNG -- there are other things like ranged weapons not provoking an attack of opportunity, potions not provoking an attack of opportunity, no critical hits on PCs, and harmful effects lasting for a shorter amount of time.