What is the best way to detect if gun’s projectile or bullet hit a character. Line trace or a collision on the projectile itself? Also which way is the best way to comunicate this to the ai character or player character via interface or by casting?
Line trace! the bullet has a “refresh” he jumps towards one direction …actualy is a problem of logic and philosophy: Zeno's paradoxes - Wikipedia 
doing jumps if the bullet go too fast may skip the target , problem that the trace line has not!
[=BIrvin;395123]
What is the best way to detect if gun’s projectile or bullet hit a character. Line trace or a collision on the projectile itself? Also which way is the best way to comunicate this to the ai character or player character via interface or by casting?
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This is highly dependent upon what type of projectile you are using. Using an overlap on a bullets collision can easily work when you want to use standard projectile types, however if you are looking to do a direct hit-if-in-reticle style weapon, then a line trace will be significantly more efficient.
There are a few types of "Projectiles that will be in my game. One of which is the normal ole boring brass real world bullets which I had already planes on using line trace for. Plasma or laser however you want to look at it, which I was thinking about line tracing also and maybe having the plasma bullet exploding when reaching the point of impact. And rail guns which again I would think of line tracing. One concept that I am having a little trouble with is aiming. For a normal bullet is fine just line trace and use muzzle flash effect, but for plasma and rail guns which may or may not have a trail how do you get it to line up with what the player is aiming at? Because the barrel will always be bellow what the player is aiming at.
Your line trace is purely for the damage side of things, you don’t need that to affect your FX for the actual projectile.
Offsets will become your best friend. Knowing the amount of offset you need from the socket and starting point to the camera.