+77% would certainly increase damage. Consider your current damage (100%), add 77%, and you have 177% of normal damage. A plus will always mean more damage; a minus, less. You can see exactly how much damage different weapons do (minus special effects, like fire) by bringing up your Character and Inventory screens at the same time, and switching weapons around.
Armor class is not like D&D; more is better. Really, it is “armor points”. The more points, the better. Again, you can switch around armor while watching your Character screen and see what item combinations give the most.
Hit points are held in the red globe. Successful hits decrease your hit points (your globe drains). When your globe is empty, you die.
To-hit is like THAC0. It is simply a number that increases your ability to hit creatures. Like Armor Class, more is better.
All of this is for the PC version; I’m assuming that the PSX one is comparable. I never read any of the docs for Diablo; I just experimented. Really, you don’t need to put in too much thought. Just check your character screen for the stats, and experiment with different weapon combos.
Assuming you can leave items in town, as on PC, I generally keep a lot of different equipment around, particularly with bonuses to magic. This will allow you to read books after you get back to town, and switch around for weapons and armor that are poor for battle but good for magic. (Once you read a spellbook, you’ve memorized the spell and lowering your magic by taking off the equipment will not make you lose the spell.)
Any other questions, Joe? There are tons of sites out there. I highly recommend having a master list of the Shrines available, because some of the Shrines are quite good; others, very, very bad.