As per Etsy article, the Purchase Protection Program for orders $250 or under only, the eligibility criteria are:

• Keep your shop in good standing (that means you're not violating any of Etsy's policies).
• Use Etsy's payment platform, Etsy Payments, where available.
• Fill out all of your Shop Policies (it's especially important to have policies for returns, exchanges, and custom orders).
• Have estimated delivery dates on your listings.
• Package your order carefully to avoid damage in transit.
• Ship your order within your stated processing times. We use the processing times you set for each listing to determine the ship-by date.
• Ship the order to the address provided on Etsy. If your buyer provides an alternate shipping address through Messages, you may choose to cancel, refund the order, and ask the buyer to purchase the item again with the corrected shipping address.
• Use valid tracking and/or a shipping label purchased on Etsy, where available.

You can still use valid tracking purchased from elsewhere other than on Etsy for now to qualify for the purchase protection program. Just be sure that the correct tracking number is uploaded when the order is marked as completed. Thus, you can use other services like pirateship.com to get regular international USPS shipping label or their third party international shipping service via simple export rate.

Yes, if you need to ship the order later than the expected ship date and have already notified the buyer, then remember to extend the ship by date. Otherwise, that order would lose its protection eligibility.

If the order met all those criteria, then in most incidents Etsy should cover the refund, but for orders under $250 only. And, you would have higher chance of winning an appeal if Etsy made a mistake.

The real major problem with the purchase protection program is for any order over the $250 limit, there is NO seller protection there. Since the purchase protection program went into effect last August, Etsy has been auto refunding quickly on non-delivery (over $250) cases out of sellers' payment account despite delivery proof, with tracking that showed as "Delivered" and even for orders with both tracking and signature confirmations. In the beginning, Etsy was willing to fully credit the sellers back on appeal, but stated it was an one time courtesy deal since the program was new, recently some sellers were only offered 50% back on appeal, and then most recently some were denied altogether on appeal.