Much of the information in this post can be found here. I will present it in a (hopefully) more intuitive manner. This information only applies to white (auto-attack, not special attacks like Mortal Strike, Arcing Smash, Hateful Strike) damage taken.
Anyone who has paid attention to the combat log (or SCT) will know that incoming attacks can miss, or be dodged, parried or blocked (although not all classes can do the later two). At the other end, it can also be a critical hit (for 2x damage) or a crushing blow (for 1.5x damage). And then there's of course the normal hit.
Blizzard has confirmed that World of Warcraft uses a table-based combat system. Instead of going down the list, checking for one, and moving on to the next only if that check fails, there is only one roll to determine the outcome of an attack, depending on the respective chances for miss, dodge, parry, block, et cetera.
Because of the nature of the table-based combat system, percentages are absolutely true. A 10% chance to dodge means that you will dodge 10% of all attacks, not 10% of attacks that do not miss. The difference is clear. With the former (not used) system, assuming a 10% chance to miss for simplicity, 10 attacks out of every 100 would miss, and only 9 of the 90 going through would be dodged. This leads to diminishing returns on the stats that are checked later in the roll system. With the table-based system, 10 attacks would miss, and a further 10 attacks will be dodged. All stats give returns exactly as advertised.
This allows players to stack avoidance stats up to 100% and effectively eliminate getting hit, ever.