According to Shadow's reply, Lin Yuan now knew that the improvement in the ability of Hidden Shadow/Killer Shadow lay in that it now enabled Shadow to shatter non-living beings and inflict multiplied damage on living beings.
Shadow used an assassination style of combat.
The changes to Hidden Shadow/Killer Shadow increased Shadow's damage power and enabled it to attack targets that were stronger than it was effectively.
When Shadow saw Lin Yuan's expression, it knew that he was very satisfied with the improvement in Hidden Shadow/Killer Shadow. This delighted Shadow and spurred it on to prove itself even further.