It's supposed to represent how much physical injury a fighter can sustain before they're no longer able to fight, and it's calculated based on a variety of individual factors and situational factors. Like stats. Another thing that might be taken into consideration when HP is lost is the power of the attack used. So... if someone with low attack power used a weak attack on someone with high defenses, it wouldn't hurt very much. And if we were to visualize it on an HP bar, it's most likely that only a sliver would be taken away.

The way the stadium is able to measure it so accurately is beyond my comprehension, but I do understand the concept behind how it's measured. Does that make sense?