Recover specifies Unit, so applies to the squad.

Does this mean that if my health 4 squad of 3 members with Recover 3 takes and no Armor takes 5 damage the order of resolution would be:

Take 5 damage.
Unit didn't die.
Recover 3.
Remove 2 health from the target model.

Or

Take 5 damage.
1 model is removed.
Unit is alive.
Recover 3, but heal only 1 because the affected model only had 1 damage.

The later is the common interpretation, but the former makes Recovery actually matter to 0 Armor squads.

Recover happens after damage is applied (per the order of operations), so the second case is correct.

Assuming the models in the squad have 3 hp each, and 3 models in the squad at full health when the attack happens:
Take five damage, dealing 3 to one model and killing it, and two to the next model, leaving it at one health. Unit has 4 hp.
Since only two models are left, the maximum health the squad has is 6. When recover 3 is applied, only 2 health will be gained, bringing the squad back to full hp (for the number of models in it.)

Regenerate would allow the killed model to be placed back on the field in cohesion with 1 hp on that model (total unit hp 7/9).