Watched that company. They make cheap ad filled copycat games. They can't be bothered to spend one day on filtering the words from the free dictionary that they used. Same for the support email, they are too busy counting the ad money, there's nobody reading them
I think you're thinking of a different company. This game lets you pay a single fee (I think it was $10 but it was literally years ago) and you get to play ad-free. They still annoy you about in-game purchases of "coins" but you can just X out of those.
And to their credit, they got back to me within a few hours and said they would remove the word.
I very much doubt this is the result of AI, as much as somebody not checking the dictionary they imported into their game. Kinda like that Hello Kitty dictionary's... concerning definition of "necklace".
Etymologically it's rather nasty: the word was coined in either Spanish or Portuguese as "mulato", as a reference to mules ("mula" - horse x donkey hybrid).
In Portuguese it seems to me that this association faded away. However, I'm going to take a guess and say that the word is probably a slur in English, so not something that you want to use for its meaning.
I'm a native pt speaker and I had never thought of the word as slur. I remember it being commonly said on TV, music, and written on newspapers without this connotation. It was certainly more common than the preferred alternative "mestiço".
I've only encountered the use of mulatto once in the wild. My girlfriend my freshman year at college had an adopted brother who was biracial. She used the word mulatto to describe him, but at the time everything she said about him seemed very loving.
It has a specific list of words in each level it accepts as answers and you have to get the whole list to go to the next level. Any other words are just bonuses. This was also the longest word in the level.