All damage that would be dealt to Protean Hydra is prevented, even if it doesn’t have that many +1/+1 counters on it. This is true even if Protean Hydra has no +1/+1 counters on it at all (and is able to remain on the battlefield because some other effect is boosting its toughness). If the amount of damage that would be dealt to Protean Hydra is greater than the number of +1/+1 counters on it, all the +1/+1 counters on Protean Hydra are removed from it.

If unpreventable damage is dealt to Protean Hydra, the Hydra’s second ability will try to prevent it and fail (meaning that damage has its normal results), and it will also remove that many +1/+1 counters from Protean Hydra.

Protean Hydra’s last ability triggers whenever a +1/+1 counter is removed from it for any reason, not just when a +1/+1 counter is removed by its second ability.

If multiple +1/+1 counters are removed from Protean Hydra at once, its last ability will trigger that many times.

If a -1/-1 counter is put on Protean Hydra while it has +1/+1 counters on it, that -1/-1 counter and a +1/+1 counter will be removed from it as a state-based action. This will cause Protean Hydra’s last ability to trigger.

If any +1/+1 counters are removed from Protean Hydra during the end step, its last ability will trigger and set up a delayed triggered ability that will trigger at the beginning of the next end step (which is near the end of the following turn).