I think Hetzner wants you to tell them you've removed it. They did as requested and took down the VPS and disabled it. It's now in your hands.
I myself wouldn't ignore such a letter. It's now just asking you politely. If you continue they need to make the choice if it's worth pursuing you. I don't have any good insight if and under what circumstances they do. I would comply, remove said content and probably not reply to them. It's unlikely to make it better for you if you talk to people targeting you. And I wouldn't keep the logs around as they requested. Accidents happen, files get deleted, nobody is perfect.
Yeah. Hetzner is the hosting company. They are the owner of the IP range and thus get the letters. They forward it to their customers, in this case OP. And the letter seems to be from one of those shady companies that scan the torrent swarms for Intellectual Property of their customers and then write letters to the abuse contacts of the IP addresses of the offenders.
I don't know where OP lives, but Hetzner is big in Germany, so it's probably german law we're talking about. And we're not very liberal with copyright infringement, should that escalate to that point.