This mod grants sheep a small armor bonus while they still have their wool. Shearing the sheep will remove this bonus until they regrow their wool. By default the bonus is three armor points which is enough to help your wooly friends survive longer against wolf attacks, stray arrows, and unexpected creeper blasts.
The amount of bonus armor given to sheep with wool can be modified using the configuration file. Look for the sheeparmor.json file in your game instances config folder. Make sure you run the game at least once with the mod installed, so it can generate the configuration file for you. The default value is 3.0 which is the equivalent to the vanilla leather tunic. For best results this value should be between 0 and 30.