It's actually based on the "average" unmodified MaxHP for that level. i.e.: What a character with exactly Vitality = (Level+10), no bonus HP, no resistance table, and no bonus for having low Speed, being modified, being Unique/Hero/Summoner.
Some of the more interesting implications of this:
* Drained MaxHP and bonus MaxHP have no effect, so it works fine w/ other Dark magic.
* High Vitality does not make the damage go up.
* Characters with "expensive" resistance tables (looking at you Ehlose) or high Speed (hi Raicho) will be more vulnerable than they appear. (Since they have less than average HP, 25% of average HP will be > 25% of their HP)
* Modified/unique demons, and especially heroes, are less vulnerable than they appear. (Since they have more than average HP, 25% of average HP will be < 25% of their HP. In the case of heroes, the HP won't seem that different, but Heroes ignore a large chunk of all incoming damage. Snuff Out can still work on the, but probably at about 1/4 or less the listed HP.)
Since it seems like you're exploring the mechanic, you've probably already noticed it can get quite powerful if you work at it.
A source of OFFUp, DEFDown, the two Miens that conditionally raise damage, Innocence... with all of these, I was able to one-shot same-level enemies weak to Light and Dark on a starting Level 1 Dark/Ice orb's stats.
It largely avoids being a balance issue because:
* It requires an enemy weak to Light and Dark. Very few of these exist in the game, and unless a player makes interesting life choices regarding Soul Armor, it is never in a player's resistance table. (Nor is this combination found in any ghost's resistance table, for that matter. Best you can get in either case usually is weak to one, no resistance to the other.)
* It does require OFFUp and DEFDown, which technically makes this a 3 shot kill at worst. Granted, in terms of Demon, that is spooky since a team can in theory take 4 actions in a single round, but, the big one...
* Very high single stat builds are player only (this will be true even after ghosts are introduced: ghosts with stats over 3/level or so will have the offending stat smoothed out by shifting points to other things.) I'm much more willing to look the other way on things only players can do.