How do I get flaking clear coat off my hood without making it worse?

Feather it out, no question. If you stop right at the edge of the flaking, you'll end up with a hard step where the remaining clear meets bare sand-through, and the new clear will chip off along that line within months. What you want is a gradual taper, so sand past the damaged area into the surrounding clear with progressively finer paper until you can barely feel the transition with a fingertip. Wet sanding helps alot here, keeps the paper from clogging and lets you feel the edge better.

One warning on the 800 grit start: you'll dig through the remaining clear fast on the edges of the repair. Work the coarse grit only where the clear is alredy gone or clearly loose, and do your blending and feathering with 1500 and 2000. Keep checking as you go. If you see color coming off on the paper, you've hit base coat and you need to back off immediately. Base coat is thin and it's very easy to punch through it with coarse paper. On the rattle can, honestly, for a daily driver it can work, but the prep matters more than the can. Cheap aerosol clear over a poorly prepped surface will peel and yellow. If you go that route, clean the whole area with wax and grease remover first, tack it off, do several light coats building up slowly instead of one wet one, and give it a couple weeks to fully cure before you wax it. Expect it to be visible up close and to not last forever. That's the tradeoff.

The other option worth mentioning since it's an older car: check salvage yards for a hood in your color. Sometimes it's cheaper than you'd think and the whole problem disappears. But if you're set on repairing, your plan is sound. Scrape the loose stuff, feather wide, take your time on the final grits, and don't rush the clear coats. The difference between it looking decent and looking like a patch job is almost entirely in how patient you are with the sanding and how light your first clear coats are.

Following this since my trunk lid is doing the same flaky thing, just a smaller patch. The fingertip trick for feeling where the edge blends makes sense, but the warning about color coming off on the paper has me nervous. My car is dark blue and the paste from sanding always looks kinda tinted to me anyway. How do you actually tell when you've gone too far? Is there some trick to spotting it before it's ruined, like checking under a light or somethig?

Update: took the feathering advice and started sanding past the flaky edge, going slow and feeling with my fingertips like someone suggested. Problem is the paste on the paper has a definite tint to it, and my car is a dark color too, same worry the trunk lid person had. How do you tell when it's just the old clear residue versus base coat actually coming off?