What literary device downplays a situation or describes something more subtly than warranted?

The literary device that downplays a situation or describes something more subtly than warranted is understatement. Understatement involves presenting a situation in a way that makes it seem less significant or serious than it actually is. This technique is often used for comedic effect or to emphasize the gravity of a situation indirectly. For instance, saying "It's just a scratch" to describe a significant wound illustrates understatement effectively, as it minimizes the actual severity of the event.

In contrast, overstatement and hyperbole amplify situations rather than minimize them, making them unsuitable answers. Exaggeration, similarly aligned with hyperbole, involves magnifying or overstating a fact, which clearly does not fit the description in the question. Thus, understatement is the correct choice, as it captures the essence of subtly minimizing the importance of a situation.