I'm not sure how the mechanics of co op work in DS, though I know one player must die to join others, my question is, does that player still gain loot etc.? And do they still progress through story elements? Or is this for the most part helping out another player thing?

No, I think a lot of people are very confused about co-op and PvP and how they seem to work in the game. Everything that you can do online in the game is ONLY to enrich the single player experience at the core. The second you beat a boss as a blue phantom in someone elses game in co-op, you will regain your physical body and be back in your own game. I have no idea if you would get any loot or not, however. But yeah, if you join someone elses game in co-op, and lets say, beat a boss that was giving you trouble in your own game, you would still have to beat that boss in your own game to progress.
 
Its all just to make the single player game seem way more involving and have cool elements to it, I definitely wouldnt ever call it a true Co-op or anything like that, its not a game that is claiming to straight up have a co-op mode for a reason.
 
I dont know all that much about it though other than what Ive heard and said here, so if anyone has anything to add or knows more and wants to correct me, please do.

Yeah, after watching a few videos on youtube your summary seems to be pretty much spot on, kinda disappointing for me as I was looking at this as a co op experience from start to finish! 
I guess there are other co op games coming out this month, but I was really hoping to give Atlus my moneys!

You will keep your loot, you can make progress in the single player this way.  I blew through 4-1 with a stranger in coop.
 
The game is definitely not focused on coop.  You can make it work that way, and it works far far far better than say Fable 2 in coop.