How to convert an engineering project into a PhD research title?
What is the difference between the research behind the development of this product, and a PhD research which is able to earn a degree?


Products are typically developed from known results (including existing research), whereas research (during a PhD) produces new results.


  Does a 4-5 years' PhD research degree program allow developing a product like this?


Not typically: Research is time consuming and there typically isn't time to develop products.


  Does the student need to mask his product development as a PhD thesis by selecting a cryptic title which sounds "wise", or would he be allowed to use a plain title like "A desktop sweater knitter"?


I think you're (discretely) trying to ask: How can I develop a product during my PhD? Don't do that. If you do, the IP will (most) likely be owned by your university, not you. You'll need a less common approach: Work for a company (possibly your own) and enrol with a university under non-standard terms which ensure the company retains (all or most) IP rights.