Are 2 prong outlets that are downstream of a GFCI outlet ground fault protected?
Ground-fault circuit interrupters (GFCI) work by looking for imbalances between the ungrounded (hot), and grounded (neutral) conductors.  A grounding conductor is not required for a GFCI device to detect ground-faults. Any devices connected to the Load side of the GFCI device, are GFCI protected. This blog post might help you understand how GFCI devices work.

If you take a look at the code quoted in this answer, you'll see that not only are the "No Equipment Ground", and "GFCI Protected" labels required. You should also not connect any grounding conductors to any 3-prong receptacles that are downstream. If there is no grounding conductor in the circuit, no grounding conductors should be connected anywhere in the circuit.

Also of note, is that this only applies to existing circuits that were installed before the code change.  All new circuits must meet or exceed current codes.