I think, personally, that the best way to model armour would be to define it by three factors: the part of the body it covers, the material it's made from, and the quality of manufacture.
My opinions:
Each part of the body could have it's correspondantly name armour-piece: Helmet covers head, Breastplate covers chest, Right Gauntlet covers right hand, Left Gauntlet covers left hand, Greaves cover shins, Boots cover feet, plus various accessory items.
Most pieces of armour would be the larger pieces that cover the most commonly threatened areas, but there might be some rarer types, like codpieces (laugh all you will, my dwarfs have their priorities, and there's no question it's a vital weak point.), that figure in to the more complete (and expensive/rare/hard to maintain) suits of armour.
Some types of armour might combine with other pieces, going over, or under them, for added protection. Chainmaille might have leather backing, or a breastplate might be made to go over a chainmaille shirt, or simply a second coat of maille might go over the first. This would ofcourse be limited and case-specific, but it would allow for secondary protection over vital areas, meaning you'd have to break through one layer to get to the second, and through that to cause injury.
Material for armour is pretty self-explanatory, but I think a lot could be done to expand and improve the way materials are currently structured in the game.
High quality bronze, for instance, really *should* be better for armour than low quality iron. Not to mention, far easier to maintain.
The most important difference from what's currently in the game would be that a single suit (either a hodgepodge of different pieces, or a layered effect) might be made of many different pieces, of several different materials.
The quality of the individual pieces should also be a factor-as should the question of whether the armour was made by a single individual, or several.
Each piece could be of a different quality, which would not only affect how well that piece protected the wearer's body, but also how well the pieces themselves worked together.
Armour should be able to be made specifically for individual dwarfs, and this should have a positive effect on that specific piece of armour, for that specific dwarf only. Caveat: An exception to this could be made for higher quality armour (atleast a '+'), that was reworn by that dwarf's child. It's maybe not entirely realistic, but it would be a nice touch, and a good use of the game's family tree functions.
Low quality armour, made by several different armourers, for several different wearers, should reduce the dwarf's ability to move in combat, and cause unhappy thoughts. To relieve this penalty, there should be a "fit armour to individual dwarf" function, which would give ownership of a piece of armour to a given dwarf. This would naturally require the skill of an armourer. The higher the skill of the armourer, the better the fit, even for really bad armour, but there would be an upper limit.
Refitting low quality armour to a dwarf should never be *quite* as good a fit as armour specifically made for that individual dwarf.
Higher quality armour should always wear better than low quality, and pieces of legendary armour would fit perfectly for anyone of the same species, once fitted. Artifact armour could even be fitted across species, allowing an elven artifact helm to be fitted to a dwarf, or even a giant, as a "magical" effect.
After all, who wants a stupid artifact laying around, that you can't actually use?
Artifact armour might show up as complete suits, or as singular pieces, always perfectly fitted to the artifact's original maker (but-as mentioned-easily fitted to others). I think it would be nice if things like gloves and boots had the option to come in pairs, though, but if each individual bodypart could be armoured separately, and targeted for damage seperately, this would be a little less of an issue.
Having armour be assigned to a specific dwarf should make getting that dwarf into his/her given suit of armour a *lot* more straightforward, and maybe faster, since they'd probably keep it in one place, on a rack, and a passing soldier wouldn't grab that legendary breastplate you really wanted your Captain of the Guard to be wearing into battle.
Slightly OT, but weapons might also work in this way, being made for, and balanced for, a specific named owner, and giving some bonuses, when used by their rightful owners (or their children--I like that idea). The weapon could be refitted for other owners, like a piece of armour, but would never be *quite* as good as a custom-made item.
Dwarfs could also have/keep the ability to forge armour made for other species, like humans and elves, as a racial ability, mainly for purposes of trade. That means that dwarf-forged human armour could be fitted to a human, but not to a dwarf.
Armour made for humans would be more valuable to a human caravan, than armour made for a dwarf or an elf.
You might even find it useful to forge armour for a pet, or other ally/guard beast.