It doesn't help that half of the posters in the thread refused to call it by its proper name even after we learned it wasn't "night mode". It's been called and discussed as night mode, night walk, naked state, naked walking.. scandalous state is what you're actually looking for but a lot of early discussion was under night mode.
Look up all of those and follow the reply chains to find discussion on it and theories. In my own experience (so not confirming its 100% accurate but seems to work for me) I think the gist of it is:
Get the exhibitionist passives (there's more than one and her comment on it will get more lewd) by being stripped in battle a lot, get stripped in battle and don't use Fix Clothes before it ends, and have high hornyness. For my high sluttiness Karryn it triggers pretty naturally towards by the save room on a riot floor from regular attacks and petting stripping her. It's actually getting a bit annoying.
The screen gets a pink mist, I think the music changes and her expression and pose changes, at least one tit is always out if she still has clothing. Her panties might need to be off.
You'll find enemies in hallways and rooms that did not have enemies before (like cleared, safe rooms and floors. If a room needs to be cleared to subjugate a floor or stop a riot, it will actually have the normal enemies in it and appear normal though and you can still contribute to stopping the riot), including guards.
When you enter the player menu it will say something about "Karryn is in a scandalous state!" where it tells you if you're fatigued, had a good nights sleep or your weapon is defiled.
If you want more specifics like the passives or more concrete information look up those other terms, naked walking isn't correct or used much iirc.
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