Look at it this way: these days, you get to watch it, pause it if you notice something funny, rewind if you think you missed something... Back then, most people didn't even have VCRs. The show has such a high density of funny (just like the Airplane movies) with funny things sometimes happening on three layers simultaneously (funny dialogue and acting, sight gags with signs, papers, etc., and completely ridiculous background action, all at the same time) that it commands full attention, and repeat viewings to get everything out of it.
That was uncommon, back then, and people weren't ready for that level of commitment.
These days, I'd say that more than half the TV I "watch" I only glance at part of the time (the rest of the time, I'm playing games on my Wii U GamePad, with the sound off, and I listen to the TV -- and I miss surprisingly little.)
For a show that does the police spoof thing on a level that worked better for 80's TV audiences, look for Sledge Hammer! (the exclamation mark is part of the title.) Police Squad is actually one of its influences (another big influence is Dirty Harry.)
And for a modern show that has similar density of funny (albeit with a different style) take a look at Arrested Development. That's another show which often has up to three levels of concurrent funny: funny dialogue and acting by the main characters in a scene, underlying quid pro quo due to the characters' crossed purposes and misunderstandings, and tons of funny background action that you often don't notice upon first viewing.