My SG62 was like yours at that age and my DH was/is the same as yours.  I could write reams about his avoidance, denial, enabling.  We currenty supplement her disability  but if he had his way, we'd be giving her more.

The only thing that has helped is separating our finances.  I finally did this 8 years ago when I got her out of our house after a hellish year living here following her second divorce.  We are on Social Security and he gets part of that as "allowance".  Part of it goes for her subsidy.  Not one cent of "family" money goes to her and nothing gets put on our charge.  What he does with "allowance" is up to him, I ask no questions.

This solution isnt perfect but it's put a boundary around the situation and I can live with it.  The real issue is DH87.  I heard him on the phone with her yesterday.  She was giving him a new sad story ("No food for 3 days" despite getting welfare food) and he told her to come over tomorrow, it's his Social Security day.  She will be cutting his hair and doing minor cleaning and he will be dolng out.

I feel for you.  Just know, it doesnt end with these dads.

No one should be paying for SD to get layed except SD and her F-buddy.  Period. Dot.

No money. In addition, if she is not complying with your parents' household rules, it is time for your parents to boot SD and let her navigate her adult life on her own.

If SD cannot maintain her amourous escapades on her own dime and manage them with some discretion, tiime for her to live those choices.  If she gets pregnant, she and BF can deal with it, one way or the other.

My Freshman year of Uni my GF became pregnant.  The very first semester in fact. I did not use parent provided resources then. I used my own resources to support her choice regarding the pregnancy. Including proposing, buying an enagement ring.  I was your SD's age. She was 2 years older.

Failure is how we learn. She needs to run out of money and work out how to get some to pay for her gas or live without it and adjust her behavior in the future. She has a home and presumably food from your parents kitchen so this would be a very soft failure, but important for it to happen. Equally she needs to fail a few classses or a semester and see that she can't just shack up full time with her boyfriend and succeed. She needs to have a relationship that goes wrong so she can learn from that too. 

As JRI implied your monetary contribution is all you can really control. Hopefully you can work with your husband and agree to stick with her current amount of support, but if you two can't find agreement then separating funds is the way to go. Maybe finding examples from your husband's past where failure lead to significant learning and behavior changes could help him see that he shouldn't always try to rescue her? 

Your post touched on the impact of your SD's choices on your finances and other matters.  It made me think about  my SD62's impact on my life.  As I mentioned, we've got a workable financial arrangement now but that's not all.

My SD62's life is so chaotic.  That's her choice but when things get bad, she calls DH87 then that chaos lands in my life.  I've worked hard to establish a quiet routine and it's necessary with my age, DH87's oncoming dementia and the oversight of my mom101.  Osteoporosis means I have Silver Sneakers 3x a week, I visit Mom twice then there's the Dr appts, shopping, bank, the normal things needed to run a house and keep life goung.  

Whenever SD62 shows up in my life, it means more work or problems, without fail.  The last time she came, supposedly to help clean, she groaned theatrically as she came in, collapsed into a chair and began her organ recital.  Too sick to ckean, in other words.  I ended up fixing a meal for her, running around to get her this and that.  I was exhausted when she left.

I guess what I'm saying is the financial drain is only part of it and DH87 will always be worried and helping his "sick, unlucky" daughter and it will always bleed into my life.

You choose the way you want to live it.  DH isn't going to change.  SD has no reason to change.    That leaves you with a compromise on SD behavior, and living conditions. Or a exit plan 

how to make your DH understand that what SD is doing is not good for her or for your family.

The thing is - he understands it completely. But if he acknowledges a problem then he will have to address it with her, come up with solutions and consequences and then hold her feet to the fire to make sure the changes are fulfilled.

He doesn't want to do any of that so he blithely denies there is a problem. This is reported regularly on ST. 

My DH did that with his adult daughter. She would be rude as hell to me and he "didn't hear" it. This happened a lot. The final straw was when she was mean to my then four year old granddaughter by ridiculing a picture she had drawn especially for her. My head shot up and I saw her little lip tremble and I snapped. Before I could speak he finally, finally called his daughter out on her behavior. I think he was afraid of what I was going to say... he did get better about it after that. But it was pure avoidance that caused it in the first place. 

I haven't seen this advice posted lately but there was this gem " this is your problem and you need to handle it or I will and you won't like it if I handle it"    Say that to DH.  Put him on notice that this needs to end.   

Dear Lady,

It sounds like you’ve a victim of the ‘ol ‘bait and switch’ that so many of our SM members have experienced, to their grievous sorrow (check out Lillywy00’s blogs). ‘Disney Dads’ refuse to either discipline or hear unflattering facts about their offspring for fear of hurting their tender fee-fees and once the unsuspecting SM is trapped (in your case, no job and young ones to care for), reality begins to emerge. 

I’m not in the least surprised that you were not made aware, until after your entrapment, um, marriage, that both your husband and his DD suffered from ADD/ADHD. Hon, if I were stuck with your exploitive, uncompromising husband, Mr. Bossman, making all the rules, I’d have bailed long ago. How dare he expect your parents, no relation to his nasty daughter, to foot the bills for her care?! Has he no pride?

Fortunately, your parents are saints and would be much happier to support their own flesh and blood than the spoiled spawn of the man who uses and bullies you. I strongly suggest that you serve your husband with divorce papers, take your youngsters and move back home until you can afford to be on your own. With two little ones, your child support will be hefty and you could probably get away with working part time until the littles are in school. That would be a real eye-opener for Bossy Britches!

Decent men do not yell at their wives! They do not refuse to discuss issues that affect their spouses so deeply. And finding amusement in his older daughter’s cruelty to his own three-year-old?! No, No, NO! Sorry to say, your husband is neither a good father, husband nor person. You’ve already spent ten years in an unhappy situation that’s unlikely to improve so please, don’t waste anymore of your precious life. ♥️