They know because you have to get a "Sonderbenutzungserlaubnis" to play and you can only get one for half a day a week. The police have strict instructions to clear the town of any musicians who do not have one. On the whole, if a businessman, resident or even stallholder orders a policeman to remove a busker, the policeman has to do it. However, as long as you don't annoy them, most policemen in most towns are not on a mission to persecute buskers. Even if they have to come, they do not usually race to the scene of the "crime" with blue lights flashing. You don't need to be a folk hero to busk here!