Stealth creates a bubble of invisibility around you. The size of the bubble is determined by your skill measured against the level of the enemy(s). You also have 3 seconds of invisibility once someone enters that bubble of detection, making it possible for someone to completely miss you if you move out of range in under 3 seconds.
The current formula is:
For classes that have detect hidden (assassins) the formula is:
For example, a level 50 ranger with 50 stealth would only be detectable within 250 units of a level 50 assassin (roughly 2 horse lengths). A level 50 ranger with only 35 stealth would be detectable up to 1000 units away from a level 50 assassin.
Stealth specialization also impacts your movement speed while stealthed. The higher the spec is in comparison to your level, the faster you will be able to move while stealthed.
An ability Assassins have the option of getting is called "See Hidden" which increases the range that an assassin can see an archer. If you have 50 stealth an assassin will be able to see you around 800 units, and it tapers off to around 2700 units with 1 stealth (34-36 units per level of stealth). To help combat this, archers were given "Camouflage." Basically it negates See Hidden, but assassins still have their normal increased detection range.
From the 1.52D Test Release notes:
When you are a camouflaged, you abide by all the rules of stealth. You will move at your normal stealthed speed, and you will become visible if you engage in combat (take damage, attack someone, shoot someone with a bow, etc.). Please note that you can Camouflage any time ten minutes after your last attack. This makes Camouflage useful to scout around unseen, but it will not help you in combat, since you will not be able to use the skill for 10 minutes after you attack someone else."
Even with the addition of See Hidden, stealth has many uses. It will allow you to get into position during large battles, allow you to sneak past keep guards, as well as anyone who does not have "See Hidden." Most rangers using a Balanced Spec have their stealth around 30-34 (some go lower to around 20-25, while some go higher to 35+). Obviously snipers would be looking to have their stealth maxxed with items/rank, so 35-37 is common.
Stealth and Firing:
November 8, 2001
"Archer classes now have a chance of becoming visible when they nock their arrow. The way it worked up until now is that archers would always be invisible if they were using stealth until they fired their bow. Now, a skill check is performed when they "nock" their arrow. If they fail the check, they become visible. The chance to become visible is based on their specialization in Stealth. On normal (i.e. NOT critical shots), if they are 50% specc'ed in stealth, they will have a 50% chance of becoming visible; if they are 100% specc'ed, they will have a 100% chance of remaining hidden. On Critical Shots, the chance is the same as a normal shot, minus 20% - so an archer max specced in stealth will have an 80% of remaining hidden after nocking his bow. Please note that in all cases, an archer will become visible once the shot is actually fired."
Being stealthed does not mean that you are immune to all forms of attack, mainly Area of Effect spells targeted on your allies can hit you if you are within the blast radius. There are a number of things that will break your stealth, which are summed up by one of the ex-Nightshade TL's.
** Being stunned while stealthed does NOT break stealth.
Bleed damage will not actually stop you from stealthing (which he stated he had not been able to test yet in this quote).