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.