Is there a way to apply different materials to player characters?
For example, I want a player to be almost transparent or turn their skin into bricks when they die, etc.
Not exactly, at least not yet. You can create costumes (using the mannequins is the easiest way currently)
You have control over player scale, visibility, attachment visibility, So you can make costumes to enhance or sit on top of the player models, or make a full costume to replace them and hide the player models.
This one puts the costume on and sets the player to invisible
This one just puts the wolf hat on the player
I see, thanks for the great explanation!
I am still not sure how to access these functionalities - is it through lua?
If you were to do it on your own yes. I'd suggest using the mannequins in Community Content (search for mannequin). These are already set up to let you hit F to equip