What does the difficulty level do exactly? It seems that it makes monsters do more damage, but I don't know the mechanics of it, nor any other effects. Does it also affect monster health? To-hit? Evade? XP? Skill point gains upon level-up?
Also, if you change difficulty in the middle of the game, does it take effect immediately, only after you switch zones or will it only affect zones you haven't been to?
I checked the manual and attempted to search the forums, but despite the wealth of information on all sorts of other stuff, I couldn't find anything on the difficulty.