Collect all four pieces of the knight armor to get half damage. If lose 50% health, the armor will break and you will take normal damage in your underwear. The armor pieces can be found as follows.

Beard: In the rear of the "Wave of Style" hairdresser's shop in Royal Flush Plaza.
Knight's Armor: Complete the game with an "S" rank.
Knight's Boots: Purchased for $2 million from "Moe's Migitations" on the Platinum Strip
Knight's Helmet: Rescue Jack in "Meet the Family" and defeat him in a poker game in the "Ante Up" case.