Nice to hear that I inspired someone else to revisit this level. Although I should note that the update at the end of last year actually added a lot more than just Chapter 1.
You may remember some of this from your previous playthrough, but the level's structure basically works like this. You start off in the main hub and gradually obtain all the movement powerups and keys. With all of those, you can get to Vigilant Port. In theory, this place can send you to Chapters 1-3. All three of these chapters then strip you of your powerups and make you collect them all anew, in addition to the eye and the spell card (which I'll get to in a moment). And so upon finishing one of these chapters, you also have both of these powerups in the main hub. With the eye, a ton of new areas are now open, some of which also feature new chapters.
In practice, the only finished chapter is the first one, so you don't actually have a choice how to unlock the rest of the main hub at the moment. But there is still a lot more fully implemented content to experience there afterwards, in addition to some other pieces of content that were newly added to the old areas (most of it is accessible through Shreep's house).
As for the mechanic you didn't understand, that has to do with the spell card. It's a reskinned detector that gives you access to your current repertoire of magic spells. The idea is that you'll be learning at least one of them per chapter and can then cast it at specific locations. Newly learned spells are sometimes required to proceed, but there are also various locations where you can optionally cast a spell you may have learned in an already finished chapter to make a challenge easier. Also, some locations will instead offer you to cast a stronger version of a spell that requires a certain number of golden creatures. Basically, this means that you're supposed to have increasingly more opportunities to make the level easier as you progress. In practice however, you can only learn the one spell taught in Chapter 1 so far. It's needed maybe once or twice there and can help you with a handful of optional challenges in the main hub. I don't know if the other spells are even functional at this stage, but they do have description images among the level's data. It sounds like this could become an interesting mechanic if the level is ever finished.