Defensive stance I only gives elemental resistance to physical damage. Attacks that deal fire, dark, or other types of non-physical types of damage are not affected by this.
"Stance:defensive stance I" indicates defensive stance is currently active. "defensive stance I" signifies an inactive state. Aura is in a neutral fighting stance when none of the stance skills have a "stance:" in front of their name.
Defensive stance is great on mage builds since it doesn't reduce matk. Offensive stance can be useful when you have an ally like John or your slime to tank hits for Aura or when the extra basic attack lets you defeat enemies before they can land a hit on Aura.
As for the situation while in combat?
It seems to work fine.