No really, the way it changes the games is insane. 
 
Since in the story mode you only can choose the 1/5 and the 2/5 difficulty i never was sure what it changed. Other then the enemies their health i though that nothing changed between difficulty settings. It made sense to me since the game is all about overwhelming you. 
 
Well i was wrong, oh so so wrong. 
 
I finally found out how to change the difficulty settings when hosting a game and i died, in one hit, on the very first level. What the difficulty setting changes is the amount of health the enemies have, their attack power and how aggressive they are. It feels like a completely different game since the enemies act so differently. The first level in multi-player is a beach on which you'll be fighting 2 waves of the early "fodder" enemies. On the 2/5 difficulty I could just stand still and take them all out one by one with my bow as they are walking towards me. On the 5/5 difficulty you can't even draw your bow because they will all use their jump attack (from 1Km far) at the same time which is a mighty impressive sight to land their club on your skull. 
 
Taking on the higher difficulty settings with an organized group should be a very interesting experience.