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3.  Since cement based stucco absorbs
     water, what protects the wooden   
     substrate?

The foundation of a good stucco job is the concealed barrier.  This concealed barrier can take several forms….tarpaper or building wraps such as "Tyvek" or "Typar".  The tarpaper comes in various levels of protection relating to water absorpbtion rates….from 20 minutes, to 30 minutes, to 60 minutes..  Up until the last 15 years the most common type of barrier was tarpaper of about a 20 minute rating.
What specifically do the ratings mean…20 minutes or 30 minutes?  These ratings are determined on what is known as the "inverted cup test"….which means basically that an inverted cup of water is placed on a piece of tarpaper and calculated how long it takes for that water to be measureable on the bottom side.  20 min means it takes 20 minutes….30 min means it take 30 minutes …etc.
Does this mean that the tarpaper can only stand 20 minutes of rain before the wood gets wet?  No it doesn’t.  Remember the stucco wall is not horizontal it is vertical…that makes an immense difference.  Vertical stucco allows very little water to reach the building tar paper.  Once the stucco is wet….it runs most of its water off the surface and very little can really soak the tarpaper…and none of it can imitate a cup of water inverted on a horizontal surface of tarpaper.  Stucco is a bit like a cedar shake….it is not waterproof it is weather-resistant.  The cedar can absorb water….but when it is full of water (wet), it runs the water off the inclined roof.  Most of the homes built in the last 100 years had eves, or overhangs, off the walls…so the roof protected the wall from the majority of the falling rain.  Only lower sections got wet, except in a driving rain storm, which did not happen in every rainfall period.  So the wall was rarely saturated … and when it was…the water percolated down and dripped out the bottom of the wall or evaporated out of the surface area….since it was porous.
Today’s best practices recommends 2 layers of 30 minute paper which gives a much higher rating than 60 minutes…because of being two separate sheets with an air layer between.  Water on the inverted test takes hundreds of minutes to penetrate such a two layer system.
'Tyvek' or 'Typar' house wraps provide a breathable weather barrier as well.  However cement based stucco applied directly on the 'Tyvek' tends to bond to the fibrous finish.  Then when the stucco cracks, it can perforate the 'Tyvek' in the exact weak area of the stucco where water may be more prone to enter.  For this reason house wraps are not often used under cement based stucco finishes.
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60 minute tarpaper