When wearing this type of armor and facing several opponents at once, all damage dealt to you will be spread evenly between yourself and all adjacent monsters. This affects all damage, not just melee attacks. Fantastic!
Sadly, it has no effect when adjacent to a single monster.
Valuable armor. Keep as daily armor and do not enchant (effect does not scale). But always back it up with a highly enchanted weapon and heavy armor: heavy monsters like trolls and tentacle horrors do not joke!
As of 1.7.4, damage dealt to monsters by mutuality armor can be regained as health via a ring of transference. A +10 ring will cause you to regain 50% of all damage dealt as health. When adjacent to two enemy monsters with a +10 ring of transference you would take only 25% of melee damage. If adjacent to three or more enemies you would take no damage.
Even though axes are usually the best weapons when diving into an army of foes, this is not true with mutuality armor. You would be better off finding and enchanting a powerful single target damage weapon (broadsword, warhammer, or runic) to deal with isolated monsters (when you are most vulnerable).