I think it's just per stands. If you have 2 stands in a forest terrain and the 1 is standing out as they couldn't get there with a failed order, missile troops can target the stand NOT in the forest terrain and hit on 4's. But as casualties are immediately taken then the stand that is outside of the woods is taken by default first.
I know that rule is true but im not sure about the "closest" unit in that regard. say 1 unit is at 15 and in woods and another is at 25 cm and not in the woods at all. I don't think that you could use the same rule to target the unit at 25 cm in that case, maybe my memory is messing with me. I'm pretty sure it was a dream I am remembering

I found your rules question exactly though. Warmaster mag #1 Q&A the "Defended" position only changes the number needed to roll to hit and not the drive back. Cannons fire at a unit in a defended position and hit twice on 4's and they get 1 roll for a drive back.
In Warmag #2 Q&A, if you have 1 or more stands in defended or fortified positions then that will effect your drive back distance rolls per the hits taken.