GTG: Shooting, 1 is a fail, 10 is a critical, is everything else a hit, so -1 health with the bearing rifle, and where does a +1 defence from cover come in?

You both roll your dice. The attacking Gnome must roll higher than the defending Gnomes dice. 1 is a critical fail, etc. If a Gnome is in base to base contact with the terrain, but more than half of the Gnome is visible then it gains the plus 1 to it’s defence roll. You can always use the Quarrel rule to settle the dispute on this.