It's not clear, but I've put some mental calories into trying to understand it. As far as I can tell, V2 deals with damage in the form of wounds in varying severity, which apply modifiers to the character's actions.
For example:
Mike is shot by a Laser Rifle (QREB=0) for Burn-2 Pen-2. He is wearing 6 points of armor without additional protection. As I understand it, Pen should come first, and if it exceeds the armor, then the additional damage type is added. YMMV on that. For my example though, we'll use my understanding.
Rolling for location, we determine that he has been hit in location 7, the Torso, which is covered by his armor.
Both sets of damage roll average(7 pen, 7 burn), with the 7 points of Pen exceeding his armor and transferring 1 point of pen damage to hits, and the 7 points of burn damage bypassing the armor.
Mike has taken an 8 hit wound to location B(Torso), which is a Severity 4 wound. He must make an immediate Severity vs C3 roll or go Out of Action.
RAW, that seems to be it. You retain the wounds for the purposes of required medical aid, but they don't seem to do much other than require another check to avoid going OOA.
In my games, he will take a -4 penalty to any actions involving C1 C2 C3, and he his treatment and diagnosis difficulties under the medical skill are against a severity 4. If he reaches Severity 7+, he's dead. Those modifiers are global, although the severity for separate wounds is not (they're tracked by the letter groupings), so it becomes harder to resist going OOA as the damage increases.
Just how I understand it from reading 5.0 and 5.09.
Edit: After a couple more days of thinking about it, I have this caveat to my interpretation:
Severity 7+ is automatic OOA, but not necessarily dead. If the Sev7+ wound is to a limb, I'd say that it's crippled, and requires immediate medical aid (surgery) to restore function. Left untreated, it will require a Sev vs. C3 roll to avoid permanent injury (Player's choice of (Sev) points of permanent damage to C1, C2, C3, repairable with cloned limb or cybernetic). Sev7+ to Head or Torso requires a Sev vs C3 to avoid dying as part of OOA. Untreated Injuries to the torso lead to possible permanent injuries are as per limbs. For the Head, possible permanent injuries include C2, C4, C5 (loss of coordination, or brain damage) or permanent damage to senses (lost sight, hearing, smell/taste) (yeah, loss of smell seems like a dump location, but it's ok to throw a bone now and then) with an associated loss of effective C6 for the purposes of influence/interaction.
Granular, maybe. But I enjoy Living Steel, so I guess it's a personal thing.
