Collisions are accurately modeled in Atlantic Fleet. The size of each vessel, their speed, armour and the angle of impact all determine the amount and where damage will be dealt. Incoming vessels usually suffer bow damage while target ships are damaged at the point of impact.
Capital ships can easily cause fatal damage to smaller vessels, such as destroyers, when ramming. However both ships will take some amount damage regardless of size. In addition escorts and other ships can ram submarines at periscope depth.
Collisions also occur between friendly units, especially those in tight formations, maneuvering sharply or with damage to their steering.
Screenshot shows HMS Glowworm colliding with Admiral Hipper which occurred on April 8 1940.
For those keenly watching the unveiling of ships over on the Facebook page you can add Admiral Hipper Class heavy cruiser and G Class destroyer to the list of ships available in game.