Because it shows they have a choice on being evil as well as being good.

Like, let's get take this example, would you be more angered who killed a person because he/she frankly had no choice and couldn't know he could've spared him/her, or a man who knew he/she can spare him/her, that it was better morally to spare others, and yet kills him/her anyway.

Having an actual choice in doing crimes because you know what truly is right and what truly is wrong makes it far worse than if you never really didn't have a choice due to your lack of knowledge.

If a villain has no moral agency or has moral agency issues, they can't be PE. Same with heroes. If a hero has no moral agency or has moral agency issues, they can't be PG. If a villain fully understands the concept of right and wrong and just straight up doesn't care and does evil just for the heck of it or to fulfill their own selfish goals, you know they're truly sinister and irredeemable. And if a hero fully understands the concept of right and wrong and does good just for the heck of it or to fulfill their own selfless goals, you know they're truly honorable and incorruptible.

But why is personality and/or sadism showing proof for knowing what right and wrong is? Couldn't it be also something like that they just feel sadism without knowing that it is wrong to do heinous stuff?

Yeah, that's the thing. It doesn't. It never did.

To what of the two questions is this answer for?

The second one on how "having a personality and/or sadism is proof one has MA"

If a villain shows sadism, they revel in the suffering of others, especially suffering that they themselves cause. That's literally the definition of sadism. If a character is sadistic and doesn't know right from wrong, they're most likely not a true villain. A PE must willingly be evil and do evil things and have no genuine care for others or remorse for any of their actions. Similarly, a PG must willingly be good and do good things and show genuine care for almost everyone they meet and not regret any of their good deeds, and they should instead show regret for all of their wrongdoings, intentional or not.

I know that dude. My question was, how you can separate that. Like how do you know if they really know the difference between right and wrong and when not?

Either they explicitly state that they know right from wrong, or their actions make it clear. There's the old saying "actions speak louder than words", which perfectly applies in situations like this.

It's literally a requirement for PE. If there is a villain who does not know what a good deed is for being a dark persona, would you call the agency right there?

That is saying being born evil and just doing evil for the rest of your life equals knowing right and wrong. If you can't tell right from wrong, you can't really call them purely evil due to not being under control.