Sure someone could make a malicious version of this app and share it, but the reason why they have this license is so that they can have the legal power to be able to get those versions shut down. They don't want to have the problem that they mentioned newpipe has, where malicious versions can being distributed on popular channels such as the official app store.

Having watched the video and skimmed the licence, it seems like you can view, edit and distribute the code. The stipulation they added is that you can't add anything malicious or monetize it. I don't see anything that would prevent the equivalent of the newpipe version with sponsorblock

It seems alright to me, but I guess there will always be people who aren't happy unless they give up every ounce of control over their own creation. Maybe it's because of the open source title, because yeah it might not live up to some of the strictest definitions out there.