The Timer
The Timer is the same thing that you know from practically every Fighting Game in existence. The Timer starts at 99 at the beginning of a Round and counts down to 00, although not in real time. Each tick of the Timer in Marvel Vs. Capcom 3 lasts about 2 real seconds. When the Timer reaches zero and no team has been defeated, the team with more total life at the end is deemed victorious.
Now, we've already discussed how each character has a different set of Hit Points. So the question is: does the game count "more life" as total Hit Points between the surviving characters or does it count percentage of Hit Points? To make it easier to understand this question, what happens if time runs out and one team has only Sentinel left with 100% of his health left and the other player only has Phoenix left with 100% of her health? Who wins? Sentinel has 1,300,000 Hit Points and Phoenix has 420,000 Hit Points.
The answer is that the characters will end in a draw! So the game does not total up Hit Points directly to see who wins, it bases it off of percentage of your health. So in the case above, both characters have 100% of their life so they tie. However, if two characters are left on one team with 25% and 35% of life left and the other team only has one character left with 70% of his/her life left, the second team will win because they have 70% total and the first team only has 60% total! So keep that in mind when trying to engage in such tactics like trying to time out Phoenix to prevent a Dark Phoenix from appearing. Sentinel with 50% health left loses to a Phoenix with 60% health left, even though Sentinel has way more Hit Points left than Phoenix.
So what happens if both characters have the exact same amount of Life left? The game is considered a draw and both players "lose." There is no sudden death, and the game ends for both players.
Also, any Red Health is ignored when determining who has won.
Strategy Corner
Level 3 Hyper Combos tend to last a long period of time and can drain a decent amount of timer before they complete when they connect. A lot of players may be afraid to land a Level 3 Hyper Combo near the end of the round, worried that the animation won't finish before the time runs out.
It turns out this fear is unjustified. Level 3 Hyper Combos actually will always complete. If you connect, for example, Morrigan's Darkness Illusion right when the timer reaches 1, as the Hyper Combo goes on, the clock will go down to zero and then actually just stay at zero until the Hyper Combo finishes! After it completes, then the match ends and the game judges who wins based on life left. So any Level 3 Hyper Combo that connects is guaranteed to finish before a match ends, so don't be afraid to try and connect one close to the end of a round to squeak out a comeback victory.