The key word is fan fiction. Almost every single word in fiction is a creative expression and thus copyrightable.

But works of non-fictional literature (of which source code is an example) have to work harder to justify their copyright.

Many of the snippets of code generated by copilot contain zero creative expression. They are just mechanical implementations of an algorithm.

You mentioned setting and plot. The source code equivalent is architecture. Copilot generated snippets are usually too short and too algorithmic to have their own architecture.

What makes a derivative work derivative is that it copies creative expressions from the parent work. If you edit them out, then it’s not a derivative work anymore.

But what if not has the algorithm be designed for to extract that creative expression from the original work.

The use is only helping developing the algorithm by adding more value to the product in improving extracting the creative expression.

Copilot is a loose/loose game for developers, regardless on which end they are.

Variable names are just as subject to copyright as character names, and specific implications of algorithms can vary quite a bit. Just look at the homework assignments of any introductory programming course.

Which is why even very short snippets of code have been an issue.