Getting Taken Out
If you don’t have any stress or consequences left to buy off all the shifts of a hit, that means you’re taken out.
Taken out is bad—it means not only that you can’t fight anymore, but that the person who took you out gets to decide what your loss looks like and what happens to you after the conflict. Obviously, they can’t narrate anything that’s out of scope for the conflict (like having you die from shame), but that still gives someone else a lot of power over your character that you can’t really do anything about.
So, if you think about it, there’s not a whole lot keeping someone from saying, after taking you out, that your character dies. If you’re talking about a physical conflict where people are using nasty sharp weapons, it certainly seems reasonable that one possible outcome of defeat is your character getting killed.
In practice, though, this assumption might be pretty controversial depending on what kind of group you’re in. Some people think that character death should always be on the table, if the rules allow it—if that’s how the dice fall, then so be it.
Others are more circumspect, and consider it very damaging to their fun if they lose a character upon whom they’ve invested hours and hours of gameplay, just because someone spent a lot of fate points or their die rolls were particularly unlucky.
The latter approach is recommended, mainly for the following reason: most of the time, sudden character death is a pretty boring outcome when compared to putting the character through hell. On top of that, all the story threads that character was connected to just kind of stall with no resolution, and you have to expend a bunch of effort and time figuring out how to get a new character into play mid-stride.
That doesn’t mean there’s no room for character death in the game, however. It is recommended that you save that possibility for conflicts that are extremely pivotal, dramatic, and meaningful for that character—in other words, conflicts in which that character would knowingly and willingly risk dying in order to win. Players and GMs, if you’ve got the feeling that you’re in that kind of conflict, talk it out when you’re setting the scene and see how people feel.
At the very least, even if you’re in a hardcore group that invites the potential for character death on any taken out result, make sure that you telegraph the opponent’s lethal intent. GMs, this is especially important for you, so the players will know which NPCs really mean business, and can concede to keep their characters alive if need be.