I like where you're headed,
@Tony Vargas. One thing I think is important to consider is that Protection is the only fighting style that requires conditions that may be outside of the player's control. Generally a player will have control over the type of weapon they use. But if someone take the Protection fighting style, it requires them to be next to someone to be effective. This means it will be more effective in parties with other frontline fighters, but significantly less effective if you are the only frontline fighter. This becomes even more true if you require uses of a shield, which then prohibits the fighter from using conventional ranged weapons (still may use thrown weapons or repeating crossbows, but you are now getting into the territory of increasing system mastery to get the full benefit of the fighting style).
This means in parties with other frontline fighters, it would be active most during combat encounters. But for parties without other frontline fighters, it would come online most often outside of combat (ie when traps go off, surprise attacks, ect).
Based on this, I think I'm leaning to the Protection Style either providing resistance or damage reduction as you suggested, or making it straight cover for allies within 5ft.
I like the damage reduction/resistance angle. If damage reduction, I think I would have it a flat DR that applies to all attack made against allies within 5ft. This causes it to scale based on number of attacks, similar to the Defense fighting style. Alternatively, you could have it be the first ally within 5ft that is successfully struck by an attack has resistance to that attack's damage. This I like less, because it is clunky. You must single out a particular ally, and it gets more complicated if the attack has multiple damage types (like with green-flame blade or magic weapons).
But I also really like the idea of just providing half cover to allies within 5ft. It is clean, a flat bonus that scales similarly to the Defense fighting style.
Maybe we don't have to choose though.
Protection Fighting Style
Allies that you can see within 5ft of you are considered to have half cover. You must be using a shield to benefit from this fighting style.
Disruptive Fighting Style
Whenever an ally you can see within 5ft of you is hit by an attack, you reduce the total damage of the attack by 3.
After all, we can have multiple defensive fighting styles.