Alex explained the process step by step:
In the first turn, all the flies attack the hydra, then they all defend until only 1 fly remains. This fly attacks the hydra again and dies from retaliation or a subsequent attack.
Therefore, the hero's stats should be such that he can withstand 5 attacks from full stacks and + 1 small attack from the remaining 1 stack of flies.

There is no difference between TE (Town Enhancement) or SOD (Skill of the Day) here for the AI.