"When a friendly ship at range 1 is hit by an attack you may suffer one of the uncanceled [critical hit] results instead of the target ship."

Let's see if I've got this straight. Wedge and Biggs are wingmates, and Biggs is taking all the fire. Wedge still has full shields. Biggs gets dealt the "Direct Hit" damage card. Wedge is equipped with Draw Their Fire and chooses to suffer the effects of the critical hit. But since he still has shields, it would only count as a face-down damage card i.e. Wedge would only lose one shield token instead of two, right? If this Direct Hit would have killed Biggs, Wedge has now stepped in and saved his life, correct?

Let's dig a little deeper. The dastardly villain that dared fire on Biggs was none other than Kath Scarlet, who forces an opponent to take a stress token if they cancel a critical hit. Since this critical hit was not canceled, but instead handed off to Wedge, neither of the Rebels take stress tokens, correct?

Just trying to get a feel for how this card might work. I've written it off up until now, and I'm trying to figure out how best to use it (other than put it on a YT-1300 that has Chewie as a copilot, which has been mentioned numerous times).

I believe that choosing to take the [critical hit] result in place of the hit ship has to be decided before the card is drawn and revealed. So your first example is correct, except that you wouldn't know it was a direct hit and in fact the direct hit card would never even be drawn (leaving it sitting there on top of your damage deck waiting for the next crit).

In the second situation, you are correct. The [critical hit] result was not canceled in that case.