I just came across an old project from January that is strikingly similar to this project called Mario Warfare, which is on YouTube, and they were funded by Kickstarter: Mario Warfare - Let's Finish This! by Beat Down Boogie ? Kickstarter

Apparently it can happen. Not entirely sure about what's going on. I realize Nintendo is a lot more lenient. And it's also possible they even cleared it with Nintendo. Or that there is a thing in place where it's "Just different enough" to not be an infringement. And I guess Square is notorious for the whole Cease-and-Dessist towards their fans being creative with their works

Just interesting how such similar projects ended so differently. Would have been nice to see the Final Fantasy one come to fruition