Difficulty

The Difficulty mode is selected during character creation, and will only affect that character.

There are 3 different Difficulty modes:
 * Softcore mode, when you die you drop half of your money.
 * Mediumcore mode, you drop all of your items when you die, including money and ammo.
 * Hardcore mode, when you die you drop all of your items and become a ghost. While in this state you cannot alter the world in any way. Once you quit to the main menu the character is gone.

This is unrelated to hardmode, which is a change to the world that occurs after the Wall of Flesh has been defeated.