I just got my butt handed to me after fighting a group of three monsters, all of which were pretty keen on beating up just one of the kids in my party. I didn't stand much of a chance after said kid was put out of commission, so I ran away, at which point the game informed me that I had been defeated.
The thing is, there didn't seem to be any adverse effect to my loss, as everything appeared just as it was before the battle. Am I missing something, or is there no downside to losing (other than my shattered pride)? Does it make a difference if you run away or are defeated completely?