Every character (and items in some circumstances) have an Armor Class (AC). The base AC for a medium-sized character or item is 10. Bonuses and penalties are applied to this basic Armor Class to reflect the effects of armor, dexterity, etc.
Armor Class is an indication of how difficult it is to hit and do damage to a target.
Apply a character's Dexterity modifier to the character's Armor Class any time that character can physically react to an attack. Characters lose their Dexterity modifier when they are flat-footed, unaware of an attacker, or when they are restrained or otherwise rendered immobile.
A character's size generates a standard Armor Class modifier, per this table:
AC modifiers of the same type do not stack, except: