i thought it was suppose to be the unbuilt prototype that the 5 gundams were based on
They were based on the Tallgeese.
yes and no the wing zero was developed from the tallgeese the 5 gundams were developed from the unbuilt wing zeros data after it was decided that it should not be built
If the Proto-Zero was never built, how did they know that it was too powerful for regular pilots?
It was mostly just the Zero System that the scientists were worried about. Also, the blueprint probably gave some information like how fast it is or how powerful the TBR is supposed to be. I'm sure the data (Blueprints) also factored in on why they thought it was too powerful.
The blueprints should give all of the data on how fast it is, or how powerful the TBR is supposed to be. That's what blueprints are for. If the scientists don't know how strong it would be before building it, then that suggests that they have very little idea of what they're doing.