I dont see what youre confused by
Nsfw artists who just happen to do stuff on lotc cant advertise it in a way that would lead to it being accessible to minors on lotc. No advertising such services in discords, profile descriptions, carrd links etc.
Administration have no intention of overstepping boundaries from lotc to outside lotc. If they do step in and do smthn, its because its become an lotc issue.
On nsfw art of lotc characters. If the characters featured are featured by the consent of the character's owner, with full knowledge of how their character is being portrayed, and if it is not weird pedo shit sure. Youre a weirdo but sure.
My own personal view is: if they did theoretically ban people etc for doing something silly on lotc or outside of lotc from playing I dont mind. Its their server I dont see y they cant do what they like. Its their product, we're not entitled to be here. 'Muh freedom muh rights!!' w/e man its a private server on a videogame
End of the day if you think what youre doing w nsfw art etc in relation to lotc is too much, it probably is. Use ur common sense. Harming others is subjective and up to the staff to interpret.