It seems that the defense comes first, then the damage reducing effect.
But through the wiki, the armor and other count separately.
So, what I think the most-damage reducing is Bettle Armor with Shell, Frozen Turtle Shell(half health), Worm Scarf, Paladin's Shield, Flesh Knuckles, Celestial Shell(at night) and Ankh Shield(all warding), then under the effect of Ironskin, Endurance,Well Fed and Dryad's Blessing, Finally, in a Mechanical Mincart at full speed(+7 def).
So, you'll have 146 defense, and reduced damage by 110.
If you take 1000 damage, it will be reduced like this(according to wiki):
- Reduced by defense: 1000-110=890.
- Reduced by armor set bonus: 890X(1-0.45)=490(round up, not very sure).
- Reduced by other effects: 490X(1-(0.1+0.17+0.25))=235.
Edit, the Paladin's Shield would additionally absorb 25% damage(if one of you teammate equip one) in Mutiplayer, but not sure how this actually work.