How do resistances work?

yes, but only for positive armor values

here is the exact formula:

http://leagueoflegends.wikia.com/wiki/Armor

25 armor → × 0.8 incoming physical damage (20% reduction, +25% effective health). 100 armor → × 0.5 incoming physical damage (50% reduction, +100% effective health). −25 armor → × 1.20 incoming physical damage (20% increase, −16.67% effective health).