As a copyright lawyer, jail time is a very rare outcome, and because they probably weren't going to sell this for commercial gain, the likeliest outcome, if anything, would be fines (and fines don't happen a lot even when there is infringement). With defenses like waiver, fair use, and the sympathy that they're just a couple of passionate kids doing all of this for a fan community, there's a chance the judge might even only grant Square nominal damages of $1. More than likely, though, they would settle out of court before it came to that, just as 99.9% of all cases do nowadays anyway. The settlement would likely be them stopping.

Orb, them attributing the trademark to Square has nothing to do with copyright. All you have to do to infringe someone's copyright is to actually copy it. Or distribute it, reproduce it, publicly display or perform it. The big one, though is preparing derivative works, essentially making sequels or spinoffs. That's the big issue here, as only SE has the exclusive right to do that.

As far as my opinion of the video, it was kinda cruel for them even to make it since it's only a hint at what could have been and what will very likely never be.