To my understanding, the purpose of capitalism is to enable those who work the hardest to in turn have the most resources brought their way. In other words, more work equals more pay. If you want to bring true idealism into the picture, then is capitalism not intended so that a person is compensated for the value that they create for society?

The problem with squatting is that it doesn't create value. It may create scarcity, but that's not inherent value. For example, diamonds are scarce in the market, but they don't have an inherent value anywhere near their price. When you work producing software, you are bringing something of value into existence that didn't exist before. When you work long day on the railroad, you are organising matter in a way that helps society to function. When you squat on real estate, you are sitting on something waiting for society to create value in the surrounding areas. Society is creating the value that the land eventually sells for -- not the person squatting. When the squatter sells that property, they are deriving the ends from other people's work. This is akin to counterfeiting money: Sure it has value in the market, but the person counterfeiting didn't create that value.