Same reason it’s legal in most western democracies. Freedom of speech, it’s not against the law to burn a book. Similar demonstrations (Quran burnings) happen just as often in e.g. Denmark and Norway, seriously loon it up, the reason I suspect Sweden suddenly gets a lot of attention for it is mainly political, with them trying to join NATO.
Having said that, there are laws against incitement against ethical groups. The reason this is not treated as such is that its considered religious critique which is always legal.
I’d personally argue that this has very little to do with religious critique. These people haven’t read a single page of the Quran in their lives. This is clearly to provoke an ethnical minority. So I could definitely argue that it shouldn’t really be allowed. Not because you shouldn’t critique Islam or any other religion, but simply because this is nothing but a provocation actively trying to hurt/offend an ethnic group and get a reaction of out of it, but that’s not how the courts interpret the law.