什麼 is a question word that means 'what?' It does not mean "something." 有 also means "have." It SOME contexts it means "there is," but it is almost 100% translated to "have" in English. LIterally: Have what good fear? or: Have what fear*? What is there to fear? 好 can be used as a modifying word of an adjective -- such as the difference between 可怕 and 好可怕。 It turns "awful" into “awful awful." That's an overly simplistic way of looking at it, but it works 95% of the time. The grammar is deceptively similar when you start, but you will need to learn the differences in Chinese from English. A direct translation will lead to mistakes like these.

First translation is right.The word "好" means "need"（需要，有必要）。 There is nothing (that we need) to fear.

反问句。有什么+adj+(的)。表示与形容词完全相反的意思。