That's not quite true. The game handles stealth quite well. But you can't expect magic stealth mechanics. Your armor is reflective, has a distinctive silhouette, and probably glows. If you're in line of sight, you will be spotted. As such, stealth isn't about getting a good sniping position, it's about getting from point A to point B without firing at anyone along the way. Completely break lines of sight; if you can see them, they can see your shiny, shiny armor. If the obvious route forward is being patrolled, you probably can't stealth your way through that, so look around for a different path that isn't being watched.
Enemies have something like a 120 degree cone of vision. Enemies who look in your direction have a strong chance of spotting you. This goes down if they're already doing something, which is rarely the case in the first couple levels (unless you've been spotted and escaped). It's also lower (but not much) if you're using the lean to peek. But nothing is guaranteed to be safe except breaking those lines of sight. Or the magic cloak.
If they spot you, enemies will remember the last place they saw you, how long it was since they saw you, and what you did to break line of sight. Different enemies respond in different ways. Many enemies will attempt to break your cloak with high spread weapons, so be wary of that if you're trying to magic cloak your way out of fights. But once you break line of sight, if you have somewhere else to go hide at, you'll be safe to catch a breath.
This is how you can get away with a nice lovely conversation between you, your assassination target, and his dozen elite guards about how you're going to kill him. Remember, it costs you nothing to be polite to those you're going to kill.