Health is a value shown by a red bar on the GUI. Health represents the physical state of the character where a fully fit, undamaged character (not counting armor damage) is at full health, and if health reaches zero the character will die and have to be resurrected.
Health can be lost through enemy attacks, nearby explosions and falling too great a distance. Note that falling damage is percentage based, so having a higher maximum health will not allow you to fall further without dying. Falling into water does not reduce the damage taken.