One of the most distinguishing features of the Fire Emblem games has always been the fact that when one of your characters is defeated in battle, that character dies, and is gone for good. Permanent death of a character is something that most videogames try to avoid, and for good reason. Making it possible for the player to permanently loose something by making a mistake radically increases the difficulty of the game. In Fire Emblem for example, if you actually let characters die once a mission, you would eventually be stuck trying to beat the game with only one character.
One good illustration of this concept is in the Megaman X series. In Megaman X5, rescuable civilians first appeared as an optional objective. Rescuing these civilians gave X an extra life and partially restored his health. A few specific civilians even forked over valuable equipable parts. Not a bad addition in of itself. However, in Megaman X6 and Megaman X7, this system led to problems. In X6, these civilians could be permanently killed if a specific enemy called a Nightmare touched them. In X7, these civilians could be killed if any shot, enemy, or hazardous terrain touched them.
Now, I should mention that dying isn't really a big deal in most Megaman games. Even if you run out of lives and get kicked back to the stage select screen, you still have everything you have collected up to that point in the game. It isn't uncommon in the series to enter a stage, go find a power-up, and then kill yourself off so that you can go to another stage. There isn't any permanent penalty for dying. In X6 and X7, the civilians became a possible permanent penalty that you have to constantly worry about. Since civilians could drop power-ups (one of which was necessary in X6), the death of a civilian could mean that the player could become weaker in the long run. Not to mention having a list full of MIA and Dead just feels bad. And since all progress is kept if you die, the only course of action if you lose a civilian is to reset the game from your last save file. In other words, losing a civilian becomes a more severe losing condition than the death of the main character.
This wasn't so bad in Megaman X6, since the only enemy that could permanently kill a civilian is obvious, and fairly slow-moving. However, it really became a pain in X7, where civilians could be killed just off-screen before you see them in some missions depending on how fast you move. It prevented the typical strategy of casually exploring a stage to get a feel for it, and instead demanded perfection from the very get-go. Because of this, even more than the sluggish controls, Megaman X7 is the only game in the series I did not beat.
Permanent loss took on another form in Megaman Zero, which conspired to make it the single hardest of all of the Megaman games. In Megaman Zero, extra lives did not replenish after a game over. Instead, you start with a finite number that does not grow much. Furthermore, it is sometimes possible to fail a mission by dying. In addition, dying seriously hurt the player's post-stage ranking. Therefore, the game demands that the player clear every stage without dying. When I went through the game, I ended up resetting every time I died.
Because of this effect, game developers should be very cautious about adding in the possibility of permanent loss. It can have a dramatic effect of difficulty, and can make a game more frustrating than fun if the loss comes seeming randomly.