While under the effect of Migawari, should a Ninja take damage that is higher than his/her max HP, the damage shall be annulled no matter if it's physical or magic.
Only protects against one attack. The effect then wears off. (Do not confuse this with regular mob attacks, it simply means that it will protect against one severely damaging attack.)
Max HP calculation while weakened is based on total HP while unweakened.
Migawari (身替の術) means a substitute or replacement for a person (e.g. to stand in someone else's place, to take the blame for someone else, etc.). In this case, it is the caster himself who is being stood in for, as the tool Mokujin (木人) literally means "wooden man".