Damage is completely fine, it is improved a lot from GTA IV as well. The only thing is that cars aren't damaged so easily anymore, which is good in my opinion, it was quite annoying having to get another car any single time.
Here are the improvements though:
- better looking damage
- parts can actually fall off (besides the hood)
- wheels axis gets messed, barely happened in GTA IV
It just doesn't happen as fast as in GTA IV, that's all.
Edit: Oh yeah, and the engine can actually get messed up, causing it to stutter and barely work anymore. In GTA IV it eventually only shut off, but the effects are much cooler now.
In addition to that the airplanes/helicopters have improved damage as well.
Edited by Trund, 19 September 2013 - 02:07 PM.