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I understand that the kin talent allows elves to heal damage and critical wounds, but does this also count as rest or sleep for purposes of fatigue?

You heal all damage and critical injuries (not lost limbs) but it doesn't count as sleep (it should be counted as rest though, if that is important).

Remember this is heal, not recover, so if you have a condition that stops you from recover damage (like if you are sleepy), you can heal damage with this kin talent.

Thanks for the clarification.