@AlienM7 Greetings,
I am a student part of a game design college course in the UK, I am currently in my 2nd year and I've previously worked on a PS2 styled horror game. I specialize in level design/prototyping, environment art, and hard surface modelling. I just signed up on here a few hours ago aswell.
Your idea reminds me of a really old controversial PS2 game from the 2000s I liked called ‘Manhunt’, developed by Rockstar Games. Yours is a sound idea given you can derive references from games of similar genre.
I'm no blueprints programmer, but theres many UE5 Melee Combat System tutorials on youtube, simply following the instructions in the guides should help you. Then a Quest and Reward System should work for your character to perform objectives for the demon, still an abundance of tutorials out there.
I'm not sure how and if you're going to be modelling any assets, but since your inspiration is from a PS1 styled game, you could use softwares like Blender to model and texture low poly assets (I personally use 3dsmax and Adobe Substance). You could save yourself from the hassle of rigging and animating your characters through using Adobe Mixamo.
As for the environment design, you could top it off with a retro-stylized/posterize shader, again, loads of tutorials on how to make a post-processing material out there on YT.
I would strictly advise you to keep your idea as original as you can if you intend to show or sell your work. Your game could be similar to the PS1 styled game you inspire from, but it can't be the same. That would basically mean throwing up original concept artwork on the characters, the lore, the environment, basically your own take on how things look and should be. Avoid downloading free models from sketchfab or elsewhere as it would not look good on you; would basically mean you're asset dumping someone else's work onto your game. Since this would be your first proper show of work, ideally I'd just stick to developing and demonstrating a 5-min gameplay prototype for your portfolio. You're always welcome to expand on your idea with the help of your peers/colleagues or as part of your own indie game studio one day, but for a newbie, a fully refined game is quite unrealistic.
Remember that there are many roles you can fill in for a game designer. Just practice, experiment and choose what aspects of game design you enjoy and are good at. I know you may be a little far too ambitious just like I used to be, but game design is no easy endeavor. However I'll try and help you on here the best I can.
GL mindlessly tearing through everything with that chainsaw