What you are thinking of is Open battle net ,which is no longer a thing on D2:R. Open b.net allowed you to play single player characters online, but is separate from closed battle net (closed b.net being the normal multiplayer everyone plays like ladder and non ladder).
People would use hero editor or jamellas to create hacked items with crazy stats, and some people went as far to learn hex and mess with those values to get things that the editor's didn't let you put it in or wouldn't save. Hero editor had the hex editor included. Anyone could add the aura effects like shiny gold, but hex values allowed you to do crazier things and add special skills like summoning diablo clones.
Open b.net was kind of like the wild west, but there were usually people running drop hack games where like killing a lvl 1 fallen in normal would drop a bunch of set/unique items, hacker duels, "legit duels" where you are supposed to have legit gear (but most ppl didn't), and then some games had a mod that would instantly level you to 99 and you could edit your stats. That is probably what you are thinking of, but you didn't need to go into den of evil to do that unless it was a specific mod that required that.
I think technically, you could still go on open bnet on the diablo 2 classic/lod client which requires a cdkey, but doubt anyone uses it anymore.
People would also play open bnet if they got account banned, but I'm not sure if you could with a cdkey ban.
Open bnet was p2p and required port forwarding to host, which is why it had the red loading bar when you load into a game, whereas closed bnet does not. The lan/tcip is basically the same thing but direct connections instead of logging into open bnet.
Here's a random video of open bnet I found, blast to the past:
https://www.youtube.com/watch?v=xEwAUKf0bAsThat makes a lot of sense. But open b.net was pay 2 play? I would be kinda surprised if my parents payed for that shit maybe not cuz they games d2 themselves (plus the slight older kids that lived next door). Hence why I ever got introduced to it so young