I thought that only applied to Steam?
The legality of it all is murky, largely because the game is ultimately free (you just pay for early access).
Illusion's EULA allows you to use the toolset for personal use only, and does not allow commercial use. Illusion has flat-out stated they don't have an interest in granting commercial licensing, and when they find a creator in Japan using the tool for commercial use, they pursue action. But outside of Japan, distribution rights (and the legal responsibility to protect the IP) are handed off to that region's distributor as part of that distribution deal.
Offering the game for free isn't commercial use, though. That why, even though he makes a big stink about the game leaking, he says "this game is free and always will be." It moves the legality into a murky grey zone. You're paying for early access/special Discord privleges, donating to the creator, etc. You're never actually buying the game. In theory, they could try to take legal action for that, but what would otherwise be a black and white IP/copyright case becomes a lengthy and expensive nightmare with no clear outcome, and a second party distributor tasked with filing the case is going to do a cost-benefit analysis and conclude it's not worth the risk
That's why the games you find on Steam typically come from open-source toolsets only, or use Unity (which offers a very cheap commercial license for small developers), and HS/KK based games are limited to Itch.io and piracy platforms.