A lot of things affect tooltips in game, and a lot of things that increase or decrease actual damage do not affect tooltips. Theorycrafter's Rule #1 of ESO; never trust the tooltip.

The reason you're seeing a decrease in damage is because each mob or target in the game has something called Resistances as someone else said. The only exception to this is critters (or naked players with no passives/CP/etc), which have 0 armor and take "True Damage", which refers to whatever you tooltip is + any other amplifications that apply to it but may not be reflected on the tooltip. The easiest way to discover which passives/etc affect tooltips is to hit a critter before applying, and then again after and comparing numbers.

Resistances work by reducing damage by a percentage, based off of level. At max rank, NPC's are technically level 50, which for each 500 resistance (Spell or Physical), they reduce damage by 1%. This means a target with 1000 Physical Resist and 500 Spell Resist would reduce Physical, Poison, and/or Disease damage by 2% and reduce Fire, Ice, Shock, and Magic damage by 1%. There are two other additional damage types, but neither of them are reduced by these (Unresistable damage, and Oblivion/Daedra damage).

This rule will not apply to levels 1-49, as the 500 = 1% is only applicable @ level 50. It also does not apply to Player targets, as players scale beyond level 50. Each 1% mitigation is currently obtained every 660 Resistance, meaning that same 1000 Physical Resist and 500 Spell Resist would become 1.51% mitigation and .757% (the game rounds down after a certain point) respectively.