You need to decompress it (called extracting) with 7zip (first result on google; don't worry, it's free, and is a lightweight and otherwise still useful program- it's used to open "archives" of data that windows otherwise can't or won't open, and has a wide range of options to compress and decompress data)
When you install 7zip, it will add a context option to the right click menu on files and folders- you'll want to right click the compressed demo folder, go to the 7zip option, and "extract to *demo folder name here*". This will render it a completely normal and now functional folder, and you're free to start the game inside it.
As for 7zip, you might as well keep it, as some other games, mods, and data in general are downloaded compressed and 7zip will almost always work on them too. You can also compress your own data for easier uploading and sharing in the same context menu you used to extract the game!