It reduces blast damage when its lower and makes it harder to see.

Increasing signature radius increases blast damage and makes it harder to hide, shields do this typically.

You sure EVE logic applies here?

a smaller signature radius means that you have a smaller hitbox, so you're harder to hit

I hope so! Just took mine to Lvl 5.

a smaller signature radius means that you have a smaller hitbox, so you're harder to hit

I'm pretty sure signature profile is just a sensor mechanic, a higher signature profile makes you easier to spot on the minimap, and determines how easy it is to hide yourself from enemies.

^^this^^

In EvE it was both hitbox, modifier for splash/aoe weapon damage, and affected how long it took to lock a target. I assume it only effects the sensors in Dust, if a hitbox is 25% smaller do shots to head or to the feet now miss? If it does affect the size of hitbox, it would explain some of the hit detection complaints. He has dropsuit lv5, so shots to his head miss would confuse a lot of people.

Signature radius prolly affects at what distance from an enemy(or friendly?) looking in your direction puts you on the minimap for all to see. This will be modified by the enemy's dropsuit type and Sensor skill level.

It prolly affects how quickly your dot fades off the minimap when you're not in any enemy's field of view.

Also, afaik, the 'radar' isn't really radar - its visual location information fed from all team members to your HUD. So if someone is approaching you from behind and there is no teammate to spot that enemy and put him on the map as a red dot, you will never be alerted to his presence by the minimap.

Also, note that you can see enemies on the map that do not have a red/blue/green friend-or-foe marker - often you have to zoom in to see something as small as a soldier.

The above is all guesstimation and inference - please correct, improve and expand as needed.