German here. "Schaden" in this case means harm or damage or misfortune (which causes someone else's joy). It can mean pity in other contexts, though, as in "that's a pity".

A nice example of an undecomposable word in German that has no ready, handy English cognate is Gemütlichkeit. From Wikipedia: "Its closest equivalent is the word "coziness"; however, [...] Gemütlichkeit connotes the notion of belonging, social acceptance, cheerfulness, the absence of anything hectic and the opportunity to spend quality time."