Ship armour increases the amount of damage your ship can handle but Energy shields prevent your ship from taking damage in the first place. If your ship has an energy shield equipped then your ship will only take damage once the shield is depleted. Unlike ship armour, your energy shield will replenish itself during a mission. When your ship (or its armour) is damaged, it stays damaged until the end of the mission. Note that your shields will only recharge when you are not firing your blasters. Most space missions have spots where there is a brief break in fighting. Those are the times you should give your blasters a rest and let your shields recharge.
The level of shield energy is indicated by a blue circle surrounding your ship's portrate as shown to the right. The circle fills to the top when shields are charged and shrinks to the bottom as you take damage. When the shields are completely gone, damage will come off your ship health instead. Higher grade shield upgrades will absorb more damage before being depleted.
Upgrades are listed below (links go to the torhead database):