I'll break it down as I understand it.
Crytek issues CIG a license to use CryEngine to develop one game: Star Citizen. They also agree to provide assistance in developing a game with that engine.
In exchange, CIG agree to pay royalties on game sales. They agree to publicize their use of CryEngine for the game. They agree to provide Crytek with any bugfixes and other technical improvements they make to the engine. They also agree not to share proprietary engine source code with third parties.
First few years, no real issues. CIG develops the game on CryEngine, there's a CryEngine splash screen, yadda yadda yadda. All the technology CIG builds, they build on CryEngine.
Until CIG spilt SC and SQ42 into separate packages. Now CIG aren't making one game, they're making two. But they only paid to make one. Contract breached.
Then, they switch to Lumberyard. Now they're not publicizing how they're using CryEngine, obviously because they're not. They've moved to Lumberyard. But all the tech they moved over, like the ship-specific local physics grid and the 64-bit precision, that was all built on CryEngine's back, with Crytek assistance, under terms CIG are no longer honoring because they're no longer using CryEngine for the game. Contract breached.
Bugsmashers. In videos, CIG show engine data they are not authorized to share. Contract breached.
Sure, it's probably a cash grab by Crytek, but you can't say they don't have a leg to stand on here. If this ****'s true, CIG ****ed up hard.