Extreme Customization...
 

Got a few questions...

Is it possible in JCS to customize the way Jazz appears ONLY IN YOUR LEVEL? And if this is possible would you just change his colors or can you actually edit his sprite?

Is it possible to make your own sprites and use them as enemys/bosses?

Also, using JCS how difficult would it be to do both of these?

None of that can be changed through JCS. Jazz's colors may be changed by the creator of a TILESET, but once you choose a tileset for a level you are stuck with whatever the colors are in that level, barring smoke rings. What you are looking for is Jazz Sprite Dynamite.