The diversifiers are open to interpretation, but doing pixel art and calling it squares doesn’t really showcase working under the limitation. The idea is to work with the “spirit” of the thing, so if it’s not immediately clear that you limited yourself to basic shapes, it probably won’t be seen as a good application of the challenge.
By this logic anything would be made of squares, because it's rendered on a monitor.
I think what they mean, is that an individual "thing" should be just a geometric shape or a small collection of simple shapes. That's like the most basic understanding of the diversifier to me. For example, a character is a square, a bullet is a circle and so on. I think making a combination (like a humanoid made of shapes) is still valid as long as each part represented as a shape has a purpose for the game (e.g. circle head, square torso, rectangle limbs, as long as each part can move independently to a degree).
They also allow more complex shapes, but say it's not ideal.
