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Body armor isn't like steel (which would be impossible for a human to lug around enough of), it's a lightweight composite ceramic, and more like the crumple zone in your car, Eideteker. The impact of the bullet is translated into a shattering action which dissipates the impact and prevents the bullet from having enough strength to penetrate the body.
You can still get wounded, especially if they use bullets different from standard NATO or AK-47 rounds, but generally much less seriously.
I really liked the critical approach the guy took on his blog:
This was a cool story. I knew fro the get-go that it was a “friend-of-a-friend” kind of thing. But a good story nonetheless....
These photos and caption are not a news story. They are “friend of a friend” story. Fanboys, however, decided to treat them as fact and begin to debate ballistics, body armor, and BDUs....
ABC did a terrible piece of journalism by putting it on Good morning Americ sans attribution or confirmation.
The Interceptor Outer Tactical Vest is the standard used by the Army right now. (It's going to be upgraded.)
I should also have clarified that "body armor" refers to the entire system, not just the "small arms protective inserts" made of ceramic. Most of it is military-grade Kevlar. But at that point on his chest, he should have been wearing a "ballistic plate" like this one.