You have understood that wrong. In those countries, private copying is legal, and the private copying levy is a tax on recordable media to collect some money from the people who legally practice private copying.

As a further note, the levy is intended for cases where the person doing the copy already has the right to do the copy (for example, recording from radio, recording a tv-show, or making a back-up copy of a movie one already owns a legal copy of). It is not intended to compensate for copying that is currently illegal (such as copies obtained using any form of pirating).

Many people misunderstand this, and think it is a levy to compensate for illegal copying. That is not, and has never been, the purpose. This misunderstanding is also one of the common arguments against the levy, since it gives the impression that even though some copying may be illegal, it is compensated.

So, by that definition, it's not illegal.

Nope, still illegal. You're paying for something you can't legally do.