English translation sounds unnatural in my opinion. It gives the overall idea that it is taught IN German, not that it's a German lesson, which is the idea behind the swedish sentence.
To be honest, however, I can't think of a natural direct English translation for this. One can say "The german lesson is good", but that would be phrased differently in swedish: "Tysklektionen är bra". Best option would be "The teaching of german is good", but to sound natural you'd need a better context like "The teaching of German at this school is good", which can be accurately translated to "Undervisningen i tyska på denna skola är bra".
Yes, this is an very awkward phrase in English. It's not grammatically incorrect per se, but it's quite odd since "the teaching in X" is not a structure commonly used in English, so at first glance it sounds like a non native speaking trying to calque a sentence to English from his native tongue word for word. You have to do a double take to understand what it's trying to say.
I'm slightly confused. I read and understood your explanation and it tied up with my understanding - but the translation of ""Undervisningen i tyska är bra."" is "The teaching in German is good." - In order for it to tie up with your explanation, shouldn't it be more like "The teaching of German is good?" (as på would mean 'in German' as shown on the translation?)
It works more or less for this sentence: https://www.duolingo.com/comment/6182025 but undervisning is a hard word to teach via translations. I see I wrote on the other one that undervisning "refers to the totality of classes, lectures and similar that the students are exposed to." which is probably pretty reasonable.