The Android clipboard is designed so that any app can access its contents. Most Android-based password managers also use the clipboard to move passwords from storage to wherever the necessary login is taking place, such as a mobile browser. Copied or cut text, for example, is stored on the clipboard until it is pasted elsewhere. The main issue here revolves around the Android's clipboard, or the place where it stores temporary text. But the app's existence shows that malware creators could take advantage of the same flaw, and create malware that could sniff passwords and then transmit them to people with malicious intentions.
ClipCaster, available on the Google Play Store, is just a proof of concept, and not malicious in any way.
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