It appears this issue is exactly what the decision addressed. At issue was whether the definition of "aircraft" applied to the model aircraft that Mr. Pirker was flying. You're correct in stating that every aircraft, as defined under the regulations, must have FAA approval (in most cases, a COA). The judge concluded specifically that "aircraft as defined in 14 CFR Part 1, Section 1.1 does not include model aircraft.[1] The conclusion to be drawn is that the FAA approval process does not apply to model aircraft. This finding was in addition to finding that the FAA policies on model aircraft - including the ban on commercial use - are not legally enforceable.
[1]"Neither the Part 1, Section. 1.1, or the 49 U.S.C. Section 40102(a)(6) definitions of "aircraft" are applicable to, or include a model aircraft within their respective definition."
And one of the issues here is that the existing regulations didn't make much sense. The exact same aircraft that would be considered a model aircraft if you would fly as a hobbyist would suddenly be classified as a UAS the instant you took any payment to fly it.
So, I could go out to a field and zoom around a field and record footage to my heart's content and be completely kosher. But if my buddy decided it'd be neat to have a photo of his neighborhood and gives me $5 to fly over and snap one, I'm illegally operating a UAS. Absolutely nothing has changed in terms of what the aircraft is and the level of danger it does or does not pose.
[1]"Neither the Part 1, Section. 1.1, or the 49 U.S.C. Section 40102(a)(6) definitions of "aircraft" are applicable to, or include a model aircraft within their respective definition."