Oh wow i'm really happy you've finished the game, and thanks for this great feedback ! Yes indeed the billboard effect can be confusing at time I will try to improve this if I make a post jam updated version.
Yes I really wanted items to be able to help you depending on the zone, magic resistance item being great for the cosmic ruins for example but almost useless in the dungeon, same for the skills, spells are powerful against the dungeon's armoured foes but pretty useless against the ruin's wizards.
The atmosphere was one of my main focus so I'm happy you enjoyed it !
For the demons they are actually not triggered by defeating the bosses, they spawn when your mind stat is low (at 20 or lower to be exact), it's to show you start to go insane and have visions of cosmic horror like creatures but it can be a bit unclear indeed !