In Tibia, you die when your HP runs out. When you die, you must log out and login again to continue playing, or simply use CTRL+G.
You will be transported back to your hometown's temple.
Consequences of Death
Skill Loss
10% loss of all skills (Can be reduced. See blessings, promotion)
10% loss of experience (Can be reduced. See blessings, promotion)
Item Loss
Any container, like bags and backpacks will be dropped when you die.
Each equipment piece has a 10% chance of dropping during death
Amulet of Loss
If you buy an AoL, you will not drop any items when you die, but your amulet will disappear.
If you have a Red Skull, then all of your equipment will drop even if you have an Amulet of Loss.
Death can be aggrevating, especially if you were close to leveling or gaining a skill. Just remember, Tibia is a game, take a deep breath, and relax.