Im a bit confused by this,

I am advertising JCpenney , what confuses me is why does no one else advertise on the keyword Jcpenney they only the store comes up, but if you type "jcpenney shoes " more ads come up.

I had an ad that ran fine under JCPenney, I took it down though cause no one else had anything under JCPenney. It ran for around a month with no issue

so how does it work, if they were to complain they would take the ads down?

Also how do I advertise "jcpenney shoes" but not on jcpenney itself. I tried adding it to negative keywords, but then it stops all the ads

I'll share my experience.
I advertised a site two years ago through its affiliate program, then stopped.
I restarted with a totally legit AdWords account recently, created an ad. Guess what, the ad got rejected for trademark infringement, and my account got closed permanently without warning. Apparently it's a capital offense. The site in question must have had their name trademarked during those 2 years.

So be careful, decide how valuable the particular AdWords account is.