Okay I live in Quebec, Canada.
I will be starting hormones and changing my name legally in Canada.

But then I got to think, what about my American papers??
I'm half American thanks to my dad. So I have an American passport.

How do I change my name on my American passport if my legal name change was done in Canada?
I can't just go to a state and get it changed since I don't live in the US. But there's a potential that I could eventually go live down there. So I'd like for my passport to reflect my papers in Canada. How does all that work?? Would I just have to go live in the US and get it changed? Or is there a way to send my Canadian papers and for them to change my American papers? This crap is so confusing. v_v

You just need your proof of citizenship primarily and any paperwork reflecting your name change.  If you plan on getting the gender marker changed, you will need a doctor's letter detailing your medical treatment for transsexualism.  You can talk to someone at a US consular office in Canada for more specific info.

I can't help with the Canadian side of things, but I do have the U.S. State Departments requirements for changing your sex marker available. They are http://travel.state.gov/passport/get/first/first_5100.html .

The key thing about "completed transition" is that there isn't a set point it occurs. I'd only been on T a few months before my doctor signed my letter for them, since my "transition" completed when I started living full time.

While a statement certifying "appropriate clinical treatment" is required, that is not the same thing as needing to be on hormones, or have had surgery, or any specific form of medical transition. And the clerks are not allowed to inquire about details.

A slight challenge, logistically, is that I think you might have to appear in person to present the paperwork for the passport gender change. And the licensed professional (doctor, therapist, etc.) might need to be US-licensed. More info is here: http://www.masstpc.org/projects/gender-marker-change/passport/

There are some good doctors in Burlington, VT. If you end up needing names, drop me a line. Good luck!