> No one can legally stop you from writing your own story about a boy wizard who goes to school

This is doing exactly that, except for an image. They didn't ask for a picture of Harry Potter, they asked for an image of a boy wizard and were prevented. The actual IP holder probably didn't implement these specific restrictions but it falls into the category I'm talking about, the idea that they own everything. It shouldn't be up to the image generator to say I can't get a picture of Harry Potter, it should be up to me whether or not I try to sell that image and risk getting busted for it. That's where copyright comes into play, as far I understand.