I'm wondering if the PnP has this damage type, and if so does it explain what it is in a lore sense? My theory is that you are literally beating the crud out of your target's ego, and eventually they just have such low self esteem that they no longer have the confidence to even stand and just fall over in the fetal position.
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This would definitely be interesting to know. Of course, the simplest answer is probably a lot like what you just said. Instead of causing damage to an enemy's being, Ego damage is basically breaking down the mental state of the enemy and forcing them to submit against their will, by a psychotic break, or by turning them into a vegetable. To me, the concept of Telepathy is darker than Darkness in that regard.
Ego damage is a scary thing to think about... pun not intended.
And I will always be @DZPlayer122.
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Another type of Mental Power, "Mental Blast," does Stun damage to the target, i.e. it temporarily degrades a character's Stun Characteristic, which determines when someone goes unconscious. Physical attacks do that type of damage too, but Mental Powers have some distinctly different features determining whether or not an attack successfully hits a target, what type of Defense counteracts it, and more. There's a lot more to it, but that subject can get pretty involved.
The way that Champions Online has chosen to concretize that abstraction for this game, differs from PnP. For example, Telekinesis in the latter is the name of a particular Power that normally targets the body like most other attacks; although the system has ways to modify it to work more like a Mental Power, if desired. It doesn't have to be defined as generated by the character's mind, unless the player has defined it that way for his character. That's called the "Special Effect" of that individual PCs Power, and the Special Effect choice can have some game-mechanical effects. Alternatively, "telekinesis" can just be a Special Effect for a particular character's non-Mental Powers, i.e. they're defined as being generated from the character's mind, but otherwise function as they normally would.
Other sorts of effects related to Ego Damage in CO can be achieved through Hero System PnP, e.g. fatally breaking down someone's mind, temporarily or permanently altering their mental capacity or personality, and so on. They just aren't considered all part of one category of Power as the default.
If that answer isn't satisfactory, feel free to ask for clarification.
Yes, Psionic Energy is a powerful "tool" potentially reality altering power, the possibilities are practically endless, while both Darkness and Psionic can overlap having detrimental effects on ones soul (Mind & Body) interacting with such a level of disastrous and terrifying implications, but unlike Darkness that can leave you a broken mess due to it's nature with some exceptions, Psionics can heal as well.
I take this quote from a review that I agree with.
"customisation is so linear; everyone is after the optimal dps:survivability ratio with 0 reliance on other players = autonomous gameplay... Players don't need each other anymore... which in my opinion is a bad thing."