Every time damage is dealt in this game it carries with it a damage super type, and a subtype. The super types are Magical and Physical, while the subtypes are the various magical elements (Earth, Fire, Shadow, etc...) For example, the spell Fireball carries the super type Magical, and the subtype Fire. The spell Flame Charge carries the super type Physical, and the subtype Fire, so one element doesn't necessarily only deal all Magical or all Physical damage.
Physical damage is calculated against the opponents Armor value. Magical damage is calculated against the opponents Resistance value.