It works just like armor works. Each point of magic armor corresponds to an increase in "effective" hp. If it is the same as it was in warcraft III standard then it is 6% effective hp per point of armor.
For example, someone with 16,66 magic armor(it rounds nicely to 100% effective hp assuming it is 6% per point) would take exactly 50% damage from magic spells since his effective hp is doubled.
Basically, the more you get the less % reduction you get per point but this is balanced around the fact that the more % reduction you have the more 1% is worth. It's basically a way of scaling to prevent armor granting complete immunity at high levels.
Disclaimer: My 6% number may be completely off but the basic idea should be correct, each point gives you the same amount of reduction based on your base hp regardless of how much armor you already have.
I thought thunderbringer was bugged atm and bypassed magic armour.
Unless they broke something in the latest patch there was a thread about this a couple of weeks ago where they tested and calculated that his spells along with static rod works exactly like they should(i.e. they are indeed reduced by magic armor).