A bit unclear currently, will try to make a tutorial in the future.
The player has grit points (fist icon top left).
You start out with 1 maximum point and get an additional max point every 6 levels.
Enemies have a difficulty level (skulls icons above their heads), getting defeated by an enemy costs 1 grit point for each difficulty level.
This means at level 1 you can't get defeated by more difficult enemies. Grit points regenerate over time or can be restored using Grit potions.