Reading the OP's posts makes my hair stand on end. I don't frequent this forum but the title caught my eye. I "know" (in the general sense) these types of families from how I grew up.
If this man has had unfettered access to the girl since she was 11 (and presumably well before then?) I would assume that he has spent plenty of time grooming her, so I wouldnt be surprised if she isn't very forthcoming with details, or if she almost seems to enjoy the attention and seems reluctant to out him. Especially if she is from a broken home with parent(s) who struggle with addiction. Abusers usually prey on children like her, because their vulnerability leaves them more compliant. And abusers are good at cultivating the "good guy" image among other adults, because it allows them to get away with their abuse longer, unchecked.
I'd say your FIL absolutely showed his true colors that night at the bonfire when he got drunk and said those things/oogled his niece. Frankly I'm shocked that you are the only adult who seemed to notice and be repulsed by it! But that fact suggests to me that this girl really has no one in her life--close or extended family or adult friends--who is willing or able to protect her. I urge YOU to be that adult, by notifying her mother AND also calling CPS. and if i were you I would certainly never leave my children in his presence without my own close supervision. (Actually, I would never bring my children around him, period. But sometimes its not that simple.)
What you're describing is much more than pedophilia. This is full on chaotic, unhealthy, entrenched, multigenerational family dynamics that you cannot fix. Nobody else in the family is concerned because this is normal for them. Report to CPS with the understanding that they may not do anything, and make yourself a port in the storm for your niece. She needs it. It will be a balancing act between how far to pull yourself back for your own kids' safety vs staying close enough to the situation to support this girl.
A thousand times over to the above, especially the bolded. The "good guy" imagine combined with access are probably the two most essential tools in an abuser's tool box.
I was close with girls in these types of families but couldn't/didn't know how to speak up to a trusted adult. The veil of secrecy/silence is so strong.