With the hammer, I mean the part that sticks out towards the viewer in the center. Its showing almost like the "teeth" of the skeleton, or the skeletal ridges. That's not a great sign. Not much you can do but give it good water quality and cross your fingers though.
As for the polyps, you've probably got a little coral warfare going on there. Often times Zoanthids and mushrooms work to a stalemate, but sometimes the mushrooms win...
Thats the thing with hydrometers, they "seem" like they're working until you wake up one day and your corals are all closed up because the hydrometer has drifted on you. Check out the realm of knowledge sticky, and on page two I've linked to a DIY verification solution. I highly reccomend using it.