Every 12th monster destroyed that is not a boss drops a Guardian Acorn. The counter resets to 0 whenever Link gets hit by an enemy. Some transitions, loading zones, and Save+Quit also reset the counter to 0.
Link takes half the damage from any hit.
The effect fades after Link is hit 3 times, after some loading zones, a Save+Quit. or Link dies. Falling into a hole does not reset the counter. Enemies that deal half a heart of damage will do no damage every other hit. The effect of the Guardian Acorn does stack with the Blue Clothes.