What's the rules with adapting?

I heard about the thing with Little Dragon Studios. That whole team was just showing love. Also, if you say that it's "adapted from", you're giving full writing credit to the original writers. I can understand a ban if they're profiting, but they also stated that people are allowed to sell Warrior Cats based merch without special permission. What's the difference with adapting, just so long as you're not profiting and you're giving credit?