Q. In the event of a margin call that cannot be fully 'covered/filled' below the 10% short squeeze protection; how is the remaining outstanding BitUSD covered?

As described by @arhag, the margin call will result in a order on the market with a 10% limit (again, 10% is currently defined per-asset as the short squeeze protection ratio, it could be something else eventually - In the beginning of BitShares 2, it even was 50%!)

Q. In the event of a force settlement (collateral is taken from those traders that have the lowest collateral ratio and the bitUSD are used to reduce their debt), am i right in thinking that their BitUSD balance / debt will decrease from this operation?

@arhag again describe it perfectly. I intentionally keep a single detail out of the description above to make it more simple to understand: The force settlement price may not be identical with the feed price per se. In fact, all bitassets (that are owned by the committee-account) do have a 0% offset from the fee price except bitCNY which was recently increased to 1% as an experiment. As @arhag pointed out, this was and still is a controversial discussion.