Shields in Divinity: Original Sin Enhanced Edition give you the ability to block physical attacks (as in swings from a sword, arrows shot at you even if those are magical sword/arrows). They can also give you an extra bonuses (many shields come with Elemental Resistance and more charms).
However to be the most effective with a shield, you must invest in the Shield Specialist Ability.The higher the block on the shield, the more valuable each point of Shield Specialist is.
On the other hand, Shields slow your movement down and require you to use One-Handed Weapons which deal less melee damage compared to Two-Handed Weapons. The way shields work in Divinity: Original Sin Enhanced Edition is that they decrease the enemy's accuracy so that their shots land a miss more times than not. The better your shield is, the greater the boost to your evasiveness.
In general, shields are good on armoured spellcasters(e.g. Battlemage, Enchanter, Wizard, Witch), but not on warriors who happen to know a few spells. You don't have to max Shield Defense to get a lot of defense. The only reason to STOP stacking block is that at a certain point you don't need any more survivability. Knight / Fighter wind up tanky enough with heavier armor and Man-At-Arms talents.