I made a closed, fenced in section on grass, using Grate 2X4 (Metal) and a Door Grille (Metal). I spawned each animal except the Bear and Moose
inside the fenced in area. They all got out. The sheep was the last to find a way out. All was empty after 1 day.
Yeah, unfortunately animals are still able to walk through objects (like grates). In addition, a bug in the latest release cause animals to escape from their cages in certain situations. However, thanks to the feedback and the bug reports, we were able to fix these issues finally, a new update about that will be available very soon (finally animals are supposed to stay in their cages then, and they will no longer be able to walk through objects) 
I know theres a global limit of the number NPC's on a server but how does the game handle spawned NPC's ?
Well, there is no real limit (there is a max npc setting in the server.properties though, but it has no effect). Or more precisely, the precision of an "integer" is the only limiting factor (it's at ~ 2 billion). Right now there is no specific spawn handling, so the game just keeps spawning animals
I guess in the future we will implement the "max npc" setting (either no more animals will spawn once the limit is reached, or just the oldest one will be replaced etc)
Incase the feature to breed animals happen to get added into the game in the future, would you consider allowing animals to have a natural death (get sick/old age/attacked by other animals/birth defect) as a way to control and keep players from overpopulating their farms and flooding a multiplayer server
Yes, actually animals have an "age" field, it's not really used yet, but most likely that will change in the long run. The same applies to "attacks by other animals", the animal AI anyway needs tweaks (so predators actually hunt their preys etc). Can't say much about animal sickness or birth defects, I guess we will think about it once the time has come 
The test was to separately put down two stones, dirt, sand, mud, and gravel, then mine them. Each gave me more than two back. Dirt also gave me gravel, and gravel also gave me sand. Who needs a sifter.
Yes, that's true. It's related to the way how the terrain is rendered, or in other words, how the underlying data structure is used for terrain generation. We are aware of this issue, but right now, it has a low priority 