Preventing further water damage to hardboard siding
In my area, Masonite siding was extremely popular during the 70's and 80's. They all have met the same fate as what you are experiencing.  Your's doesn't look too bad yet, but once it starts, the bubbling and swelling will continue. The only way I know to slow the process is to remove as much loose paint and disintegrated paper material as possible, prime with a sealing primer like Bullseye pigmented shellac, or Kilz. The goal is to be sure you have sealed as much of the affected surface area as possible. Use two coats of primer if you want a better seal. Get up behind the slabs as far as possible.   Then overcoat with your color paint. Try to do this when the conditions have been dry for a few days and the siding is as dry as possible. If it is damp or saturated with water, like I have seen many times, painting is a waste of time, it will not stay and the swelling will continue.  Keep a good coat of paint on any areas of wear or where chipped or peeling. You cannot eliminate the damage without replacement, but you can slow it down.