You can make custom monsters, or enemies. And it isn't limited to just battles, either! There is a whole Overworld engine included!Everything that you could possibly need to make your dream Undertale Fangame is right here. The various screenshots to your right were all made in the engine. However, since I am now the one who does it, I am updating the engine.
The Undertale Engine by TML is one that many have used to create fangames like TO!Ink Sans Fight, Gaster Blaster Sans Fight, SpookyTale, Undertale: Knowledge, and plenty of others! TML is no longer maintaining the engine, sadly.
