You mean a unique, not a rare (rare = yellow text, randomly generated; unique = gold/brown text, set stats). What does it say exactly?
"-XX monster defense per hit": Does exactly what it says. I'm pretty sure it works vs bosses too. I don't consider this majorly helpful for AR problems since you have to land a hit in the first place for it to work. Though I think the defense reduction applies for everyone, not just the user.
"-XX% target defense": All your attacks act as if the monster had XX% less defense. The effect is halved vs bosses. This is "always on" (i.e. don't have to hit it), but only applies to the user's attacks.
Rares can in fact get the -monster defense mod. I've never looked through the code or any data files, but I can tell you how it works first hand from some experience.
What it seems like it does is reduce the defense of the monster you're attacking by that amount per hit. I can tell because when I was attacking hell baal with my WW barb using stone crusher, I was missing a lot (judging by the sounds, mana/leeching) but after awhile, I would start to hit much more often, eventually always hitting.
When I was playing single player, I experimented with this and noted similar results with a zealer against hell diablo.
So what this seems to suggest is that the effect is cumalative, and that it works on everything. Whether or not it's really a good mod is hard to say. I'm inclined to say no, since you need to hit the monsters a few times before you'll get any benefit, and if your AR is so low that you need to use this mod, it will take a long time to get the number of hits you need. You'll be better off trying to find equipment to give you more AR in this case. Against act bosses, I could see more of a case for this, since they tend to need a lot of hits to take down.