A collation is a set of rules that specifies how text is compared (and by implication sorted) in a character set, and by extension, how text is sorted.
The collation is used, for example, in a order by clause of SQL
Apparently, in Sweden, z is ordered before ö while in Germany, the ö is ordered before the z.
See also
Collations are especially important for databases (order by, group by etc.):