A slightly different question is why this article is marked as [flagged] but not [dead]. Often (usually?) when an article is flagged by multiple users, it's also killed and made invisible (except to users with "showdead" turned on). Users with sufficient karma can then "vouch" for dead stories to revive them.
But when a story is [flagged] but not [dead], no user remedy is possible. The story is penalized to not appear on the front page, but the comment page is still usable. I think this state happens after a manual review: users flag, Dan assesses, and then decides that penalized but alive is the best outcome.
But maybe there is some other way it can end up like this? I'll write to Dan and ask.