I am glad that your father is doing better. It sounds like the medications they are using have really helped him.
Hospice careis started when someone is nearing the end of their life, usually with a time frame of 6 months or less. Your dad was told that he had less than one year to live, and only time will tell if that is true. Hospice focuses on quality of life and comfort. They probably stopped some of the medications and treatments that weren't helping your father, and sometimes this can help improve the way people feel. It sounds like it worked for him, and that is good.
Remember, the doctors gave an estimate how long your dad is expected to live given his heart problems. That doesn't mean it is written in stone. He could absolutely outlive their estimates, although it is rare that this happens. I know it is emotionally hard to not know what is going to happen, but you should focus on the fact that he is feeling better and his quality of life is good. Since this could change at any time, I would recommend taking each day as it comes.
As for your question about when you will be able to tell when his heart is "really failing"- this will occur when the fluid builds up again, but the medications do not help to relieve that. This may occur faster if the kidneys are not working well.
You also wanted to know if hospice is prematurely involved. I would say that most times, hopsice is called when it is too late. You have already seen the benefits that hospice care can bring.