Stealth does not work against Npc mobs
Stealth doesn’t shield you from damage. Mobs will only drop aggro from you and stop attacking you. However, some channelling skills will continue to ‘track’ you while in stealth.
I generally find stealth to work well for dropping aggro and trigger it’s traits.
You must not leave the shadow refuge before it ends and it’s AoE circle disappears, or you will be revealed.
Sometimes your visual appearance does not reflect your ‘stealthed state’ properly, this is a bug. Watch the messages, if it says ‘Immune’ when you tried to enter stealth, you were ‘Revealed’ and stealth failed.
Some weapons have a tendency to auto-attack, revealing you, also, right clicking a mob will start auto-attack (another bug), so be careful when you use that for turning.
as frans stated, stealth does not block dmg, generally mobs do aoe dmg, so if you stealth near A mob you can still get hit. 10 in toughness traitline (forgot name) has a traitskill that blinds foes when you stealth. might be a fitting trait to help you evade that last hit as you stealth.