Answer:
it is not, the prisoners worked until they were set free (by death).
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Placed over the entrances to Nazi concentration camps it was a very sick joke.
Irony is a phrase or sentence where the meaning is directly opposite what actually occurs. For instance, "We had a fabulously great meal today", where afterwards it gave everyone food poisoning.
The meaning of the phrase is literally "Work makes [you] free", but that's not an accurate actual meaning. A better translation is "Work brings freedom." When used in the context of a perceived prison camp, "freedom" means return to the normal world. As it was placed over camps explicitly designed to kill everyone admitted to them, the actual outcome of entering the camp and working was exactly the opposite of that promised by the phrase.
It is thus perhaps the most obvious instance of irony.