I’m developing a game with the use of the Paragon set and other sets of the marketplace.
When I want to publish my game do I have to pay royalties on the paragon set?
Or can I just release it for free and make money with in-app purchases?
Yes, you can use the Paragon assets that have been published in the Marketplace.
You do not pay royalties over marketplace assets but on the use of the engine itself. So anything you sell within your game or that directly generate revenues within your game (AKA publicity) or that generates revenue directly or indirectly because of the game usage or sales counts for the revenue of the game itself to pay royalties for the use of the engine. According to the EULA 5% of said revenue above $3000 per quarter of year (so if you generate revenue of $5000 in a quarter of a year you pay 5% of the difference, meaning you pay 5% of $2000).
In short, even if your game is free, any money you make with it, directly or indirectly, counts for the royalties you have to pay.
I recomend you to read the EULA (EULA - Unreal Engine) so you have a better understanding on this. If you find the EULA to be confusing you should try and contact a lawyer to explain it to you so you avoid any kind of legal issue.