Tested Gigantic Squid (a vanilla creature) in the arena. It can squirt ink.
You squirt ink.
You are no longer in hiding.
You can't sneak because somebody can see you.
The MATERIAL_EMISSION_WITH_HIDE_EFFECT causes the squid to enter stealth mode even if creatures are watching it. It's kind of a "Hide in Plain Sight" move.
By default the interaction only works underwater, but:
[INTERACTION:MATERIAL_EMISSION_WITH_HIDE_EFFECT]
[I_SOURCE:CREATURE_ACTION]
[I_TARGET:A:MATERIAL]
[IT_MATERIAL:CONTEXT_MATERIAL]
[I_TARGET:B:LOCATION]
[IT_LOCATION:CONTEXT_LOCATION]
[I_TARGET:C:LOCATION]
[IT_LOCATION:CONTEXT_LOCATION]
[I_TARGET:D:CREATURE]
[IT_LOCATION:CONTEXT_CREATURE]
[I_EFFECT:MATERIAL_EMISSION]
[IE_TARGET:A]
[IE_TARGET:B]
[IE_TARGET:C]
[IE_IMMEDIATE]
[I_EFFECT:HIDE]
[IE_TARGET:D]
[IE_IMMEDIATE]
[IE_LOCATION:IN_WATER]
go to interaction_standard.txt and delete the [IE_LOCATION:IN_WATER] line, and your flying squid will be able to disappear in a cloud of smoke in midair.
Weaponization would be to make some kind of "Shadowdancer" creature that repeatedly hides and sneak attacks.
You can mod out the material emission if you only want creatures to simply disappear.