It says it has half your hps. But when I brought it up in game it was said they were saying half my hit dice. It looks to me that it says half your hps.
"This shadow has a number of hit points equal to half the shadowdancer's total. The shadow uses the shadowdancer's base attack bonus and base save bonuses." - Summon Shadow
That's looking pretty unambiguous. Your shadow's HP is half of yours.
Yes, it clearly refers to hit points and not to HD.
(It's possible that those you play with remember the 3.5 shadowdancer, where the shadow companion gained actual HD as the shadowdancer progressed [2 HD for each 3 levels], but the PF version is much simpler to handle)
Though you could equip it with a ghost touch weapon if you liked (or so it can still do something against targets immune to ability damage), then it would be able to perform iteratives.