if an attack of 2 damage is dealt and it is unblocked can you put the damage on Frodo then he uses he response to rise the threat or does 2 damage kill Frodo 1st so he can not use his response
The card reads, "Response: After Frodo Baggins is damaged, cancel the damage and instead raise your threat by the amount of damage he would have been dealt. (Limit once per phase.)"
Since the text of the card is "Cancel the damage", that means that the damage never gets applied to him. If it had said, "After he is damaged, heal him", then the damage would be applied and then healed, and it would have a chance to kill him if it was too high. But since it says "Cancel the damage", the damage never lands on him in the first place and so he can survive even an attack of, say, 6 damage from a Hill Troll.
But only once per phase -- so if you have a SECOND attack that goes undefended, and you've put the first one on Frodo, you won't be able to cancel the second one and it will probably kill him.