To answer the original question, there are two types of AC. In Beta testing, they were displayed seperately; damage mitigation AC and damage avoidance AC. Damage mitigation is derived from the "raw" AC of your equipment. It reduces the amount of damage you take in melee/ranged combat, which is part of the reason plate-class characters (warrior, paladin, shadowknight, etc) tank better. They generally take less damage than a chain class character (ranger, rogue, berserker, etc.).
The second portion of your AC, the avoidance factor, is determined by your defense skill and agility. There is definitely a connection between "raw" AC and defense skill; the higher your skill, the more composite AC you get when adding a piece of equipment with AC. I'm not sure of the exact relationship, though. This component helps you avoid being hit. There are other factors, such as monk AC bonuses, racial bonuses, skills like dodge, parry, riposte, disciplines, AA skills, etc, but that's not exactly AC.