It says "KO a Deadpool you control"

Could I KO a "The Captain" I had named Deadpool last round? If so, would I then be able to recruit the 7, and have the leftover 2 for another drop/equipment/payment power/shift?

5 rps from build, +4 from KOing the Captain = 9
Recruit 7 drop Deadpool, = 2 rps

I suppose the question comes from do I get to choose how my "free" rps are spent?

No you can't choose how to spend your "free" rp. Those must be spent on Deadpool. But the 2 real resources you have left over can be used to recruit what ever you want. :D

Sheye is technically correct, but he worded it confusingly, so I'll just clarify: you need to identify which points are being spent on what. So you CAN gain 4 resources, spend them plus 3 more (from your base pool) on a 7-drop, and have 2 of your base pool left over to spend elsewhere. The 4 points from Trouble With Clones must be allocated to recruiting a Deadpool, or else they can't be spent and will be lost at the start of your formation step. So if you decide to spend 5 points from your base pool on a Deadpool, you're going to end up wasting 2 of the remaining TWC points, as they can't be "cashed back in" for regular resource points.

I assumed that much.

So KOing "The Captain" I had named Deadpool is ok for Trouble with Clones?

I only ask because Trouble with Clones specifically says "KO a Deadpool" and not "KO a character named Deadpool."

Aye, it's the same thing.