It's not that the demons found it appalling per se, but rather that they lacked imagination to come up with the more creative stuff that humans did to each other.

"Oh, he did his best to make their short lives miserable, because that was his job, but nothing he could think up was half as bad as the stuff they thought up themselves. They seemed to have a talent for it. It was built into the design, somehow. They were born into a world that was against them in a thousand little ways, and then devoted most of their energies to making it worse. Over the years Crowley had found it increasingly difficult to find anything demonic to do which showed up against the natural background of generalized nastiness. There had been times, over the past millennium, when he’d felt like sending a message back Below saying, Look, we may as well give up right now, we might as well shut down Dis and Pandemonium and everywhere and move up here, there’s nothing we can do to them that they don’t do themselves and they do things we’ve never even thought of, often involving electrodes. They’ve got what we lack. They’ve got imagination. And electricity, of course.

One of them had written it, hadn’t he … “Hell is empty, and all the devils are here.”

Crowley had got a commendation for the Spanish Inquisition. He had been in Spain then, mainly hanging around cantinas in the nicer parts, and hadn’t even known about it until the commendation arrived. He’d gone to have a look, and had come back and got drunk for a week.

That Hieronymus Bosch. What a weirdo.

And just when you’d think they were more malignant than ever Hell could be, they could occasionally show more grace than Heaven ever dreamed of. Often the same individual was involved. It was this free-will thing, of course. It was a bugger."

It does make more sense in context. Crowley isn't a stereotypical evil demon and could reasonably be considered a failure as a demon.

I think the horror comes from the thought that a being whose entire job is to come up with new and clever ways to bring about human misery and suffering is so thoroughly out-classed. The idea that humanity doesn't need an outside influence to inflict such evil is horrific. The joke is just there as window dressing to contrast the real horrors of our collective history.

Well yeah, the point is not to make _literal_ sense, this whole book is fiction, not technical writing. It's OK in that context to use devices like hyperbole and irony. A previous author, can't remember who and don't feel like googling, wrote a line in a similar spirit: "Hell is empty and the devils are here". He didn't mean that there were actual demons walking around on earth, who had left a physical place named Hell, which was at the moment unpopulated.