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I'm confused by your license agreement. We are able to use this art for projects, however we cannot give a copy of the art to someone...what do you mean? Like we can't give away sprite sheets or something? I'm looking at using these in a collectible type game but am worried that it will be perceived as "giving" away the art because it involves the pixel characters.

Also, I'd like to somehow integrate the ability to randomly generate in game. Can I get source for this to enable in game? As it stands the tool is useful but not if you want to use all the characters in game...

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you can't share the sprites or sprite sheets like you send them to someone else or you sell them , but you are free to use all of them in your projects free or commercial

Understood, but I guess part of my question with that is if we modify sprites from here, does that grant us the right to then sell/send them? Some of these sprites look fairly identical to ones found in this generator:

So I feel like its difficult to understand how our modifications can be differentiated.

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you can edit them to fit your project but you can't send/share them with anyone or resell them, also I did edit all the characters for the new version and the license will be the same for all the art in this version or the upcoming ones, I don't understand what you want to do with the app but if you want to create a character generator in your own game and you want to sell the game it's ok because in that case, you aren't sharing the assets with anyone but only you are using them in your project.