Take from the official website's FAQ.

"The visuals of Valheim look kind of old, what’s up with that?"

"We have chosen a stylised graphical look that blends low-resolution textures and sparse polygonal detail with modern materials, lighting and post effects. The visuals are inspired by the early days of 3D graphics, like the style seen in PS1 titles and old DOS-era 3D games (before hardware acceleration and texture filtering was a thing)."