It would at least make extracting the bullet easier by keeping the fragments contained in fabric. Dragging the fabric along with it would probably slow the bullet down a lot faster too - meaning shallower penetration.

Reminded me of the theory that Mongolian soldiers wore silk shirts because it made extracting barbed arrows easier.

http://en.wikipedia.org/wiki/Mongolian_armour

Watch the first video starting at about 1:10. From my understanding the material could have two properties -- being both soft and pliable, but also becoming hard as a board instantly upon impact as from a bullet.

So it's like a Newtonian fluid? Didn't the mythbusters shoot a corn starch solution to find out if it can stop bullets? It could not, but maybe this thing can?

I think what they are saying is that it can go from having properties of Newtonian fluid (like water) to something as stiff as a board under magnetic influence.