I take it to mean u must not alter n any way & claim it as your own. Some people will change a design & claim the design as theirs. We all change sizes, colors etc. & may have to to get it to fit a hoop or the area we r putting it. * Monica I'm sure u will get other opinions on this.

YES! They don't want anyone taking part of thier design and putting it with part of someone elses design to make a new designs and call it your own. I have changed colors before on designs that say this but it was only for my own use I didn't try to claim the design as mine after the change. I changed it only because I didn't have the color they were calling for. But this is mainly to keep people from changing something in a design and then calling it thiers. All pertains to the copywrite laws. Hope this helps.

Yes. I would take their restriction seriously and not make any change, including re-sizing, etc. Some companies, like Disney, for example are very active in protecting their intellectual property. As I understand it, most Disney designs can not be altered at all. This includes things like changing Mickey from facing right to facing left.
Additionally, adding or taking away stitches can affect the final result in unexpected ways. For example, Free Standing Lace (FSL) designs and cross stitch designs may not stitch out properly if stitches are added or taken away.
The digitizer owns the design. As an embroiderer, I am only purchasing a license to use the design according to the digitizer's restrictions. If the restrictions are too limiting, then I am free to purchase something else. There are lots of great designs available, including all the free ones offered on this site.

Tia, I am not sure even a full-blowen attorney could figure it all out. So many designs, from so many different people with so many different rules. I read, and if they say a designs can not be sold on any item, disney is one of these, then I delete them. I also do not buy any that I can not sell on something. I do not want to get in trouble, as the restrictions are a serious thing. H&*

You can resize and change the colours, but you CAN NOT change the design itself. EG, if it is a bunch of flowers and you only want one of those flowers, you can't delete the rest and just keep one. You can combine designs to make a picture or a scene, but you must keep the design itself intact.
You might sometimes get a read only file. That is a safeguard to stop people changing designs.These can not be changed.

Thanks for asking. Learned something :)

Can I use another person’s work without permission if I make changes?
Generally, you will need express or implied permission to copy someone else’s work even if you are making changes or additions to it (such as changing the colours). If you can put two works side by side and still identify important
parts which have been copied, it is likely that you need permission.
Can I sell craft items which I have made from items containing copyright material?
You will not generally infringe copyright by selling an item such as a coat hanger made from Bananas in Pyjamas material you purchased, or a play suit or cushion made from material which the manufacturer printed with TheSimpsons or The Muppet Show designs.
However, you may need to consider other areas of law if your item looks as if it is authorised merchandise.
Can I borrow templates, designs or patterns, or buy them second hand?
You do not need permission from a copyright owner to buy, lend or borrow templates, patterns, kits and so on. This is because copyright law does not give copyright owners the right to control such uses of items in which they own copyright.
Generally, anyone borrowing or otherwise acquiring the item is likely to have the same right to use the item as the person from whom they acquired it.
"Australian Copyright Council Information Sheet G021v10 Hobby crafts and copyright"