I didn't mean to imply all ships with armor presently would get that flag. Most ships would not get that flag. There would probably be less than 20 units in the game with the armor flag. That's how insignificant armor is overall. In the triangle case we see a max Mark-on-Mark reduction of 12% by armor. But overkill damage obscures that minimal amount of damage reduction to the point it isn't noticeable.
I agree with Hearteater that the problem with armor (if anybody doesn't understand) is that it's currently a basically insignificant or unnecessary mechanic. Rarely, if ever, are dedicated anti-armor ships needed or used against high armor ships, which creates a pointless niche. The only thing a player really considers when choosing counters are the opponent's hull type. Considering that hull types need a serious revamp/redistribution, we should decide whether armor still plays an important or necessary role in the game. If not, let's get rid of it.
There is something in ship matchups that armor gives that hull multipliers don't, some measure of protection against large number of weak shots. Is armor doing a good job of this in the current balance? For most ships, no, it's not playing a significant role. But that is a consequence of the current balance, not the current mechanic. If armor could be balanced relative to weapon damage better, and reviewing which units should have enough armor to make a significant impact on battles, then I would start considering armor.
I think the real problem with armor is that it can easily be overcome by overkill. The ship takes a lot of damage to go down? Bring MOAR ships to shoot it! If armor had a limit of "Hey, I simply don't take damage below this threshold", it'd turn into an "Oh sh..." moment.
True, but that is pretty much a problem for any sort of durability or damage mitigation mechanic. Even with hull multipliers, unless the hull multiplier turns out to be 0x, "MOAR" will win, with sufficient amounts of "MOAR".
Take for example that handgun vs a tank scenario I think someone mentioned earlier. So, who would win in a fight, a dozen guys with handgun or a tank (all in decent condition and build quality)? Tank, duh!. 100 guys with hand guns? Still betting on the tank. 5 million guys, each with a handgun? ...In that case, I'd bet on the handguns.
Now of course, it doesn't get that extreme in the game, but it does show that short of invincibility, "MOAR" is uncountable with sufficient amounts of MOAR.
I do think that things can be improved upon. While I would not like to see minimum damage due to armor (or whatever damage mitigation mechanic that may take its place) fall to 0 (small amounts of damage being bumped down to 0 when the datatype could clearly support more granularity just irks me for some reason), I would like to see it lower than the current 20%. That way, it would be harder to amass sufficient amounts of "MOAR" to take out huge, well armored targets.
EDIT: Now while I do think the current mechanic and formulas can be balanced, there is something to be said for switching to a new mechanic that would be easier to maintain balance wise as new stuff is added. With the current system, it is very easy for armor values to sort of be "forgotten" as the game shifts.