whats the difference between magical and physical damage in a battle?

Magical damage is dependent on intelligence and fire, light, and shadow fall under it. Evoker and illusionist gear is best for those who do magical damage. Physical damage is dependent on strength and wind, earth, and water fall under it. Myrmidon and assassin gear are best for these.

Neither is better than the other in general but individual pets generally do prefer one or the other depending on whether their strength or intelligence is higher.

Hope this helps!