There are two kinds of def, VIT Def and Armor def.
VIT Def reduces damage by one POINT per def, not %. It goes up when you increase your VIT stat.
Armor Def is given by the armors that you wear. (Kinda obvious xD)
I'm not too sure of the exact formula, but for every upgrade, it increases by 0.33. However, it appears on your stat screen as one whole point, but it's actually 0.33 per upgrade.