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The land octopus-like creature is likely a herbivore. It likes to eat the clothing of travelers since most clothes are made of plant matter. The creature can't survive by only eating clothes of travelers.
It probably dosent eat much, its magical, MAGICAL!!
There's no physical law that prohibits you from containing a lot of energy in a finite space. You might need even more energy to keep it there, but it's not prohibited.
That's what is to be done for controlled nuclear fusion.
And you're right, in fantasy, normal physics don't apply much.
In this case, the amount of energy in the arm would only be less than half of the maximum output of the person, since the rest must be used to contain the power itself in a relatively small space. And when this compressed energy is released, KABOOOOMMM!!!!!!
If something is free and available, people are going to take it. That's a fact of life, and no amount of guilt and blame will change that.