Dear lord, now I see why the brat pack came out. That is some...interesting armor. But there's no rule against making Morrowind more colorful.
Anyway, as far as I know, armor doesn't need to be physiqued unless it's supposed to contour to the body like a cape (or long hair). Basically armor replaces whatever body part you assign it to, e.g. a helm will replace hair. To add armor, you first assign it a http://wolflore.net/uploads/bodypart.jpg, then create the http://wolflore.net/uploads/armorpart.jpg using that body part. The art file for the body part is the mesh that you see when you're wearing the armor. The art file (mesh) for the armor part is the ground mesh and the icon is for the inventory icon. Most armor should only need to replace one body part, like hair for an open face helmet, hands for gloves (each hand needs its own body part/mesh) and upper legs, groin, and knees for greaves. Lower legs/feet are for boots. After you add the armor, put it on an NPC in the CS. If you did everything right, you should see it on them. If it doesn't show, then something somewhere wasn't added properly. Let me know if you have any questions or send me the resources and I can whip up a quick mod to show you how to add everything.