Your original idea sounds fine. Why don't you think it's how you should go?

Aowood said:
I just wasn't sure if it would be a fun idea.

The usual method to find out if something is fun is to try it.

If programming and testing is too much, you can make a paper prototype and test that.

All three suggested systems, and many others, make sense, but only Pokémon-style irreversible progress should be called an “evolution”: transient, reversible changes like being hurt and being healed (1) or accumulating and spending “energy” (2) are only something that comes and goes during play, like positioning or choosing different moves. Changing creature stats and appearance is only a detail.

Telling the player that their creatures “evolve” implies some expectations:

• that the creatures get permanent improvements (possibly overspecialized, and possibly sacrificing old features), not downgrades
• that upgrades form an upgrade tree requiring some long term planning
• that upgrades need to be earned with an equally long term investment of experience or resources
• that there are combos and diminishing returns making some upgrades undesirable

Temporary changes could still be an important, dramatic game mechanic. For example:

• Hurt creatures could be a lucky event, if the normal outcome of a mishap is that they are dead/crashed/KO.
• Healing creatures could be a big deal because it requires significant effort or important resources (for example, going to a hospital or consuming a limited stock item in a Pokémon game)
• Accumulating energy could be difficult, dangerous or unlikely, and spending it could be proportionally devastating.

Shoot'em up games offer many examples of different character forms, some evolutions and some not:

• Pickup items that increase firepower for the current weapon
• Pickup items that add a weapon (often temporary)
• Pickup items that change the current weapon
• The button in Ikaruga that switches the ship freely between white and black: identical, but immune to the opposite bullet colour
• Buttons that activate a special, superpowered "mode" that consumes limited resources (and can frequently be cancelled early to dspend frugally)
• Bombs and limited use attacks
• Accumulating and/or losing to enemy fire optional ship parts