Difficulty should correspond to frequency of death, if it's a game where you die and respawn.
like your typical rpg, if you die, you reload the last saved game. and you die a LOT in Caveman! <g>. due to the random nature of the game's design, just like real life, you can encounter deadly creatures at any appropriate time, whether you're a newbie, or a seasoned veteran with many skills , tools, weapons, armor, medicinal herbs, etc. unlike your typical fps/rpg, all encounters are random encounters, no hard coded spawn points. the only thing close to a spawn point is an occupied shelter of some sort, which is populated with persistent npc's. unlike a shooter, you can have a deadly encounter anywhere, at any time - nowhere is safe. you can't just stand in one spot knowing no encounters will occur until you move forward and trigger the next spawn point.
having difficulty affect just healing rate only has an indirect impact on frequency of death. the frequency of deadly encounters from which you can not escape would not change. fortunately this rate is rather low. such encounters may happen once or twice in an evening's play. And as the player becomes stronger, fewer encounters turn out to be IDNST (instant death - no saving throw). When you first start out, you'll run from a single cave hyena. Once you have band members and javelins and bows, you might just try to take on that group of saber tooths, instead of running away.
to have difficulty directly affect the frequency of death would probably mean the standard adjustment of "more hp and damage done for me, less for you". so i kill you faster, and you kill me slower. i can see a need for this, if the player is busy exploring , learning, gathering, and crafting, and keeps getting interrupted by big nasty animals that eat them for breakfast.
then the question becomes, how much easier? should you be able to kill a woolley mammoth with a single bare handed blow?
with this version of the game, i'm tending to take a "whatever the player wants" approach to such things. so i'm planning on leaving all the playtest controls, game editors, etc in the game. so if the player wants to reveal the entire world map, or edit their skills, they can. sure its "cheating". but if they want to cheat, they only hurt themselves, its not a multiplayer game.
perhaps separate difficulty settings for hp, damage done, and healing rate.
the healing rate difficulty level is an integer percentage value, zero or greater. IE 0% to (max value of an int/100)% what is that? 40 million % or something like that? i'm probably off by a few decimal places.
difficulty affecting your hp means you're harder to kill. which would seem to lead to dieing less often.
difficulty affecting your damage done means you kill faster, but they can still kill you just as easily. unless you get the drop on them, you'll still probably die in a deadly encounter.
difficulty affecting their hp is the same as affecting your damage done. same idea with their damage done, and your hp.
so it looks like there should be a difficulty level adjustment for your hp, to reduce the frequency of death.
and the difficulty level for healing rate is required to help "skip past the boring parts", as one must so often do in a true simulator. that's why most simulators have things like autopilots, the ability to plot and follow waypoints, and accelerated time - to help skip past the boring part of getting to the target. In the case of Caveman, nobody wants to simulate being laid up for 6 weeks while you heal up from almost being trampled to death by a woolley rhino.
what about difficulty setting for other things like successfully completing actions, such as gathering, crafting, learning, social interactions, etc?
of course, if you get into that, you might instead simply give them more points to assign to their stats during character creation. a higher health stat = more hp. higher charisma = more success at social interactions, higher intelligence = better and faster at learning skills, improved god relations = increased success in gathering, etc. but then everyone is a superman. in a typical fantasy rpg, the player is often considered to be "above average", and thats why they're an adventurer, not a merchant, smith, farmer, drover, innkeeper, or serf. but in simulations, the player is usually just an average joe. and after all, the game is Caveman , not Cavesuperman <g>.
Another possibility is required percentage completion.
Sorry, i don't follow. could you elaborate?