The difference in Threat is added/substracted to the lesser harm, harm, or severe harm you already get from the position.
So let’s say a Heavy (Threat 2 due to his fine armor) is in a position against an Undead which would be Risky Position/ Standard Effect . But this Undead is an Infamous (Threat 3). The Heavy rolls Skirmish; gets 4.
- The Heavy suffers level-2 Harm from Risky, +1 level due to Threat difference. So level 3 Harm.
- The Standard Effect is diminished by one level to Limited effect or only 1 Tick on a clock.
But how does threat tie into this? Is it just for working out the fictional effect/position setup before the roll?
Not exactly. This is more or less how it works in vanilla Blades. But in Band of Blades, the difference in Threat informs the choice of Position/Effect, and then the difference in Threat is also added/substracted. So it is very important that in most situations, you should not automatically worsen the Position due to this difference in Threat. Because it would mean that this difference counts twice. It can happen sometimes though.
So to go back to my example above: the T2 Heavy should not automatically be in Desperate/Limited because the Infamous is T3. Because this would mean that the normal result for a Heavy<>Infamous roll would be Level 4 Harm, 0 tick (after difference in Threat is added/substracted).
Also: difference in Scale between adversaries works the same.
See the exemples on page 228/229. The first example explains the way Threat combines with Position to calculate final Harm, just like I did above. In this Rookie example, the Position is not worsened because of inferior Threat. In the Marchioness<>Chimera example, the Position is indeed Desperate, but not because of the Threat difference, but because of specific characteristics of Chimera.