Any gear in a damaged state provides less of whatever stats can be "starred" if the item is HQ. For rings it would be defense, magic defense, and evasion. The stat boni remain. So if your armor is damaged you will take less damage. If your weapon or tool s damaged you will fight / craft / gather poorly.

Prediction:

SE will remove durability loss for accessories just like they did for undergarments. Easier fix than making the repair NPC be able to fix them and will be welcomed by all.