The way I see it, if my 65-h.p. character takes a 15 h.p. hit from something the DM tells me-the-player it hits for 15 and I-in-character wince and make it clear I felt that. When I'm down to 25 I can say in character I'm starting to fade a bit; my character obviously doesn't know the numbers but does know she's taking a pounding. After a combat when I'm at 45 out of 65 (in a system with slow natural healing!) and a healer asks me how I'm doing, in character I can say "There's others worse off, I'll be fine; but I did take a hit or two."