The official guide says, "As it stands wrestling does not do any damage." Back in 2006, that statement was true. When wrestling, your character would hit with its hands and make sound effects, but do no damage. You could wrestle a Sheep and never win. So Wrestling was a useless skill!
Since then, the game developers have experimented with increasing and decreasing the damage from wrestling. Thus the above statement might not always be true. Even so, wrestling still does little damage compared to other methods of combat, but still, when trained, and used correctly, can be effective.
At Wrestling 1, no damage is dealt. Beginning with Wrestling 2, a very small amount of damage is dealt. Damage increases with each level, but even at Wrestling 7, a pet Giant Rat will deal more damage to an opponent than its tamer's wrestling. Do not expect to run around Oberin tossing aside Giants with your elite wrestling skills.
When it happens Edit
For most classes, wrestling happens because the player forgot to equip a weapon. For example, maybe the player freed its arms to drink a potion and forgot to hold a weapon again. Thus when wrestling, the solution is to equip a weapon.
Clerics and Druids sometimes wrestle because a creature attacks them, and these players typically do not wield weapons to fight back. Instead, the game causes the player to automatically wrestle. If the creature is not too terrible, then the player may continue to wrestle until a pet or another player defeats the creature. A cleric might be able to sustain itself by healing itself.
Warrior Cleric tend to use wrestling a lot, as well as their other weapons.
There are rumors of high level magic users wresting giants.
In the Character Creator, do not assign any points to the Wrestling skill if you are starting the game for the first time, as this is a skill that levels up easily depending on your class.