And another person calling him out for using copyright material usage, so i'll also ask you the same question as above.
What makes it wrong for
@wolfzq to use said materials, but it's okay for ALL of the other doujin artists, and other game companies or circles on DLsite from using copyrighted characters in their works? This is very confusing to me, and i'd really like it clarified.
In case of doujins it's just Japanese manga culture that was established over the years. It is only illegal if copyright holder complains. They don't complain about doujins. They can but they don't.
There is no such culture in gaming. There is no massive market of derivative fan-made games. So game publishers are much more willing to shut down people profiting from their properties.
Lilith, owner of Asagi character that was one of costumes used, are among the more aggressive publishers when it comes to copyright.
Overall, it is within the right of the copyright holder to send a cease and desist order to anyone directly profiting from their copyrighted material. It almost never happens with derivative works in manga form but it does happen with derivative works in game form.
It is completely up to the copyright holder to decide what is a permissible way to profit from their property and what is not.
The more properties of different copyright holders are used the greater the chance that one of them will decide to get involved.
The better the game is known the greater the chance that that will happen.
The more blatant the exploitation of those properties for profit is the more likely that is to happen.
This sort of derivative work exists in a grey area and does so only because copyright holders in Japan believe that is beneficial to them. It is ok not because the law allows it but because copyright holders allow it. But the more legally grey such use is the less likely the copyright holders are to try to do something about it if they were to decide they don't like that particular use.
Creating a derivative work for no profit is not a breach of copyright laws.
Being paid for working on a project that is partially derivative and is free otherwise is not a definitive breach of copyright laws.
Selling a mostly original project that contains derivative elements is probably a breach of copyright laws in most jurisdictions and so it is up to copyright holder to decide if they have a problem with it.
Selling mods that are in their entirety a copyrighted material is most definitely a breach of copyright laws in all jurisdictions that have copyright laws and it is up to copyright holders to decide if they have a problem with it. They are much more likely to have a problem with this than in previous case.
Personally, I consider wolfzq's use of copyrighted material for profit wrong because of how blatant it is (in a sense that what you get behind paywall is just outright copy) and because of how much he was bothered about his own copyright.
TL; DR: for any derivative work that is monetised it is ok either because the copyright holder is not aware or because he is aware and decided It's Ok.
If copyright holder decides that a particular derivative work abuses the unspoken permission it was given to use the copyrighted material it suddenly becomes Not Ok.
It is best to not do something that may cause the latter and try to keep to the former.