what's up with baz?

You'll have to play the DLC and find out. (If you don't have it you can get it free from the E-Shop as an update)

do u lose ur progress

No, you can select an empty save file and start one of the DLC campaigns separately.

I believe this one is called plague of shadows

plague of shadows was already a thing when i got it but when i play as plague knight baz looks like he does in the other campaigns

After you beat him you can talk to him and get him to join your crew