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Damage Modifier in Fallout, Fallout 2, and Fallout: New Vegas, known as Damage in Fallout Tactics, on ammunition indicates how much base damage the weapon deals. In Fallout and Fallout 2, multiply the base damage of the weapon by the fraction. In Fallout Tactics, multiply the base damage of the weapon by 100% + percent. In Fallout: New Vegas, the damage modifier is a multiplier on certain types of ammunition.
It does not work in Fallout due to errors in the game engine.
So for example, 10mm JHP ammo in Fallout 2 has a listed damage modifier of "2 / 1" which is just a more formal way of saying "2". Any damage this weapon does is multiplied by 2, though to cancel this effect out, this ammo also happens to have a Damage Resistance Modifier of 25, making it appropriate really only for low-armored targets.
In Fallout: New Vegas, the damage modifier is listed as "DAM x .85" for armor-piercing ammo, for example. This roughly means that after all other calculations, weapon damage is reduced by 15% (though in this case, ammunition has a Damage Threshold modifier to make up for it).