Activating Demon Mode gives Piccolo a dark edge, tapping into his latent demonic power. This changes a few things, gameplay-wise.
-Upon activation, you will see an empty Demon Bar and a grey kanji added to the screen.
The Demon Bar can fill up three times and the kanji changes colors each time. Grey = LV0, Yellow = LV1, Orange = LV2 and Red/Pink Flashing = LV3/Max.
-Using any 'demon' moves fills the Demon Bar. These include the Standing Strong Punch, Double Claw, forward throw, Eye Laser, Destructive Wave, Mystic Harpoon (both versions), Trap Blast and Trap Blast Break.
-EX Mystic Harpoon's ender changes from a Mouth Blast to an Eye Laser which does more damage, recovers faster and keeps the opponent airborne longer allowing you to continue your combo.
-Trap Blast becomes available (detailed below).
-Dead End becomes available (detailed below).
-Hellzone Grenade costs LV2 instead of LV3 and takes you out of the mode.

ps. You're unable to enter Demon Mode if Hellzone Grenade is currently in the background.

Upon activation, Piccolo goes into a charging state. if the opponent hits him with a physical attack during this state, Piccolo bursts into a radial explosion, knocking anyone he hits up into the air. Piccolo will also automatically perform the explosion after a certain amount of time. If you don't hold the punch button, he'll perform the explosion right away, though it'll be less damaging then. If he's hit by a projectile attack however, he's knocked out of the move, but you can use the explosion to destroy incoming projectile attacks. Works great as an anti-air. If he's hit by an opponent attacking from the air, the explosion will do an additional hit. Despite being a Power Mode Exit, it only has one level of strength. However if you fully charge it, it becomes unblockable.

ps. You're unable to active Dead End if Hellzone Grenade is currently in the background.

A child version of his Hellzone Grenade, Piccolo can place energy balls all across the sky to hinder the opponent. QCF+K balls are shot at a diagonal angle, while the QCB+K balls are created above Piccolo and then travel on a horizontal (and squiggly) trajectory to their destination. Weak Kick places balls close to Piccolo, while SK balls are placed far across the screen. The balls are inactive when they float to their position, but become solid objects as soon as they're placed. If the opponent touches one, it explodes. If you've created a bunch of Trap Blasts, the opponent might be juggled from Trap Blast to Trap Blast. Yeah, take it! The balls can also be detonated: d,d+P for the QCF+K versions, and d,d+K for the QCB+K versions. Keep in mind that you need to use the same button to detonate each version: d,d+LP for a QCF+LK Trap Blast, d,d+MP for a QCF+MK Trap Blast, etc.

There's a 6 ball on-screen simultaneously limit to the Trap Blasts, though that limit is dependent on the type of trap blast. You can have 3 of the QCF ones and 3 of the QCB ones, but no more of either type (so no 6 QCF ones for example).