It's an umbrella term for a set of technologies. Each of them can be used in isolation from the others if you want though. You don't have to use shadow DOM if you don't want it. You don't have to use custom elements if you don't want to either. You are correct though that almost every tool that works with them sort of assumes you are going to use both.
I kinda like this approach.
You can change the combination of used APIs for different cases.
"Widget" that you provide for partners to put on their web pages? Of course you'll use shadow DOM, because you don't know the page context, surrounding styles, etc.
A component to share on different parts of your site - you can skip the shadow DOM, because you share common styles everywhere, and probably you want to inherit some of them.
I think in terms of the implementation keeping them separate and composable is very useful. I think the marketing around it could have emphasized it a little more but that's water under the bridge really.
