There are only two ways a difficulty setting has ever been used, and only one would be good for a game like this.

Either the health and damage is going to be adjusted so easier difficulty means you take less damage and deal more, while harder difficulties turn enemies into sponges that absolutely destroy you in 1 or 2 hits.

Or they re-do every encounter, 3 times, adding, removing, or re-arranging the mobs so they are easier or more difficult by actually tweaking the challenge and not the just the “numbers.”