So if a player has a barrel and shoots an NPC .....then quickly puts the barrel on does he loose agro? or if he is being shot by Heli and has agro....if he puts the barrel on does the heli fly away or not shoot at him?> or is does this just provide a line of site barrier ?

AND if you have the barrel on , and the NPC or heli shoots in your direction, and happens to hit you, do you still take damage while having the barrel on?

It blocks on target events while wearing the barrel, if you shoot a bear for example then put the barrel on it'll lose aggro.

Yes you still take damage with the barrel on.