In a nutshell, your avatar's soul will vacate his body upon death, and it will do so in the form of a wisp. Wisps will gradually regain enough energy to reenter the avatar and awaken it, and doing so necessitates progressing through four distinct phases. Reviving your avatar in its optimal state is thus dependent on timing, and the importance of reviving in a weak state vs. a fully recovered state will vary depending on your chosen game mode.
Nerd Kingdom is enabling corpse-looting in TUG's survival mode, but the devs are also intent on designing plenty of camping deterrents into the system. You can read all about these, as well as the rest of the death mechanics on the TUG Kickstarter project page.