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You are in complete control of what your character can and cannot to. Most players are at least vaguely aware of what the character's abilities are before playing. In the senerio you gave, if Shredder tried to knock Mike out, it is up to Mike's player as to whether he is knocked out or not. He may black out completely, become disoriented, get the wind knocked out of him, or it may have no effect what so ever. It's up to the players.
They only thing a character cannot do is be invincible, because obviously it's unfair to the other players and makes the game less fun.
Most of us haven't ever seen any of the Palladium RPG books, I know I haven't, although I'd like to. You may take the points and levels into account with whatever character you're playing, but don't expect that the other players are using the same system.
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