Welcome to the forum Mike and I am glad you are loving your new game.
Barney explained it correctly: the Subs will get a Surprise Strike every round as long as the defender has no Destroyer in the SZ.
Except in your example, if the Subs only hit once, then the defender should tip the Battleship first, not lose a Cruiser. The defender would then have three ships with which to shoot back.
A Battkeship has two Hit Points: it can be damaged, without being immediately lost. I hope you understood that is its special ability.