They can't do everything with it. They do anyway, because they're too big to lose a case like that. He cares, that's why he did this.

How it damages DC? Well, imagine the same happened to Superman. Everyone can now legally sell Superman merch. That means you have to go from a 1000% markup to some "measly" 50% if you want to compete at all. And everyone can create new comics and sell them legally. There's nothing preventing you from advertising it as "the new Superman comic you've all been waiting for".

Now the funnier part: even though Marvel is generally more loved and known among people who aren't comics fans, 2 of the 3 most well-known heroes (Superman, Batman, Spider-Man) are DC. Now imagine MCU being able to legally include Superman, DC would be pissed.

Another thing is that if someone wants to damage the IP, they can now. Legally selling a comics where Superman decides to kill all black people? Perfectly legal. How will people like Superman afterwards, I wonder?

Sure, Fables isn't Superman and is nowhere near in popularity - I used it as an example because it's easier to imagine - but it's still popular enough that many people know about it (partially thanks to the The Wolf Among Us game) and it could/will hurt DC in the ways I mentioned.

This is how I understand it: the 3 main alternatives for the author were:

• Do nothing and comply with DC shenanigans.
• Try to fight (legally) DC.
• Make it public domain.

None of them are ideal and, although (from what I understand... IANAL) you are right that with the 3rd one DC can do whathever they want, companies don't like when anyone can make any kind (gore, porn, furry porn...) of fanart with their products. If Fables ends up being identified with not-safe-for-monetization stuff, it could be dangerous for them. Imagine the possible "won't somebody please think of the children?" juicy headlines about it.

But I think the main reason is that this makes it a problem only for DC instead of it being a problem for the author.

EDIT: As pointed in other comments, they would also loose the exclusivity over the product and merchandising. They would need to compete with very cheap legal-knockoffs.

The point of putting a property in the public domain is precisely so anyone can do whatever they want with it. The basic idea is that all creators draw on their wider culture for ideas, and therefore all creative works belong, in part, to the wider culture, and need to be turned over eventually. The fact that Willingham uses so many public domain characters in his comics is itself a good illustration of how this works. Two of his main characters are Snow White and the Big Bad Wolf (among many other fairy tale characters). They eventually get married. Are you concerned about preserving the "spirit" of those original stories, which Willingham freely reinterprets? I doubt it, and you shouldn't be. We all, as a culture, own those characters and can use them however we want. What this decision means is that the same now applies to Willingham's specific versions. I have immense respect for the man for making a principled decision.

As for how it damages DC, it doesn't do anything directly. They can still make and sell whatever they want, same as before. It's just that now they have competition, because other people can also make and sell Fables books. Assuming DC loses the inevitable legal battle, at any rate.