Armor Points are a statistic in XCOM 2 that determine how much damage is reduced on a unit before it takes damage to its Hit Points. Both Soldiers and Aliens can have Armor Points.
Yellow pips to the right the Health bar represent Armor Points, available on select suits of armor and certain abilities. Any incoming damage, except for Armor Piercing (armor-ignoring) damage, will be reduced by this amount, applied before the Armor is shredded. Armor is only depleted when shredded and will otherwise continue to offer full protection.
Soliders can receive Armor Points by equipping certain Armors or speccing into select abilties, whereas Aliens have Armor Points innately.