Armour did improve, but so did the crossbow. The device itself was made more powerful over time, and arrow design was advanced to make armor-piercing bolts. (for each type of armour.) Tests show that a (modern) crossbow has more penetrating power than a bullet. In addition, the weight of the bolt drives it further into the target. And any movement made by a stricken target would agitate the wound, opening and damaging it further. By comparision, a broad sword could not cut through plate mail.
The history of warfare among sentient beings is that of ranged fire becoming more and more important, while technology makes ranged fire more and more effective. Melee weapons became a dead end, both technologically and tactically.
Dodging arrows, much less bolts, is an exercise in futility. The projectiles travel at great speeds and the human eye is not well adapted to tracking such fast motion. At most, you can feint so as to fool the archer into loosing his arrow in the wrong direction.
Crossbows took a long time to reload, even those that had advanced winches to reload faster. To compensate, crossbow volleys were fired in a staggered mode of fire, so that the crossbowers were never left exposed to attack.
Wounds, even if not fatal, often killed their victems via infection, internal bleeding or other complications. The bolt head could be forged so as to resist attempts to remove it without causing more damage. Marksmen would often coat their bolts in food that had rotted so as to introduce their prey to the bacteria that dwelled within it.
Even if the bolt missed, the crossbower was not immediate danger if well positioned. He could simply reload and fire again. The crossbow had terrific accuracy, even with novice archers, and at close range (20 feet or so) head shots were feasible.
This does not make for balanced or epic gameplay. The only weakness ranged weapons displayed was logistics - they required maintenance, lots of ammunition, and careful positioning and cover. Fantasy games typically "penalise" ranged attacks' power, which is fair, but not realistic.
I suppose shields could have a higher effectiveness against ranged attacks, but I don't know how thick the metal would have to be to absorb the damage, nor how dense. (Wood wouldn't be good enough.) And the heavier the shield, the slower the soldier can move.
As far as fortress mode goes, a crossbow should be more of a challenge to make than simply giving a bowyer 1 log. It should require light mechanisms for reloading, and either wire or muscle fiber 'string'. Standard crossbows should have a chance of breaking or misfiring in battle - only '+' or higher should be immune. Crossbowers should only be able to carry about a dozen bolts - they will need a close stockpile to rearm. And of course make them reload much slower. But this would only make combat more fiddly and awkward.