Well, first let's sort out what the Kalmar Union was (and wasn't).

It was a personal union, where three different countries had the same monarch. All three Scandinavian countries had elective monarchies at that time, albeit with a preference for electing people within he same dynasties. So the nobles (or stormän, or jarls if you want to go even farther back) could elect and also dethrone kings. That alone tells you that the monarch was not that strong. The countries did not have strong central government. Besides power being held by local jarls, the church and its bishops had huge power and wealth. The countries had also been hit hard by the Great Plague int he 14th century, and the Hanseatic League of north Germany was the dominant trading power in the Baltic. Ok, so the king is fairly weak. Being in another country there's not even a theoretical chance of exercising direct control anyway.

So in the late 15th century Danish Margarethe comes along, and in very simplified terms, basically inherits Denmark, marries into Norway and gets herself elected as queen of Sweden on the condition of defeating their German king, which she does. Not bad! Not having any heirs of her own, she adopts her sister's daughter's son Bogislav now Erik of Pomerania, has him coronated in Kalmar and then an act of union is signed or something. We don't really know! The document we have doesn't have the correct seals on it, is on paper rather than the expected parchment, has amendments and crossed-out stufff and doesn't exist in six copies like it says it should, so interpretations have varied. It may be just a draft document, or it might be an attested copy of a summary of what was decided, which is why the seals aren't right - they're for the witnesses and not the original signers.. Anyway, the content makes it clear that the three countries remain three countries, with their own laws. But they are also bound to to assist each other in war.

So in short the monarch gets to collect taxes, appoint foged/fogde/fogds as local administrators and tax collectors, appoint clergy (the Vatican at that particular point is too weak to stop it), handle foreign policy and wage war. The latter bit is an important to the motive of taking up competition with the Hanseatic League. (at least according to historian Erik Lönnroth)

Anyway, Margarethe still continues as de facto ruler but with power being gradually transferred to Erik until her death (1412). Already 1410 Erik starts war for territory against Holstein (at the base of the Jutland peninsula) and then against he Hanseatic League, which, with breaks, would continue until the 1430s. In 1429 he also starts trying to claim the Sound Toll on all shipping in and out of the Baltic, which would ultimately become a Danish cash-cow all the way until the 19th century.

This isn't that much in the interest of Sweden and Norway though. Norway's selling fish to the Hansa, who have offices in Bergen. (Everyone's still Catholic, so fish on Fridays is a big deal, not to mention lent) and Sweden's shipping iron from Bergslagen down to Lübeck through Stockholm (nominally a Hanseatic city). They have much less to gain from picking a fight with the Hanseatics. Add to that, the Swedes are angry that Erik has been appointing Germans and Danes as fogdar in the crown castles and estates, despite promises that only Swedish nobles would get those. Taxes are high as well.

Supposedly the Danish fogde of Västerås, Jens Erikssøn, was super-cruel and forced pregnant women to work so hard they had miscarriages and other horrible things, according to the Swedsh chronicle of Engelbrekt, which is a highly biased source nobody really takes too seriously. But in any case, the figure Engelbrekt comes out of Bergslagen in 1434 and demands Erikssøn be replaced, but gets nothing. So he raises an army and takes matters into his own hands, forces Erikssøn out of his castle and executes him after a trial. The rebellion continues, with Engelbrekt and his men successfully laying siege to castle after castle until he's taken 14 of them, 2 in the then-Danish province of Halland before a truce is declared. At which point only the 7 strongest castles are still left in Sweden (plus the ones in Finland).

Anyway, in the peace negotiations they agree on only letting the king put foreigners in three castles, that he was required to listen to the advice of the national council (but not to follow it), and that there would be future discussions about taxes. Notably, Engelbrekt did not demand or appear to want to dissolve the union, but the secessionist tendencies nevertheless increased in Sweden. Engelbrekt passed away in 1436, and the Swedish nobles, considering Erik to have broken the treaty in a number of ways (including by intending to designate a relative as heir without any election) declared Erik deposed not long after that. The remainder of the history is a pretty messy back-and-forth of rules, but the short is that the Swedes pretty much do what they want while the Danish kings try to reclaim power, it breaks out into open hostilities under Sten Sture the Elder and then the Younger (no relation! the latter just took the former's name as a political statemnet). Initially these are however fought mostly between pro-and-anti-union Swedes rather than being the Sweden-vs-Denmark affair it became at the end.

Sten Sture the Younger is killed by the invading Danish king Kristian II, who takes Stockholm, has himself coronated as king of Sweden and then celebrates with the Stockholm Bloodbath, where about 100 anti-unionist Swedish nobles are executed. This leads to Gustav Vasa taking up the fight (bankrolled by the Hansa) and defeating the Danes, becoming king (1523) that's the formal end of the union. Vasa also converts the country to Lutheranism, confiscates church property and gathers power, and it's now you start to have a really strong central state both in Sweden and Denmark. Not long after Frederik I of Denmark decides that Danish nobles should have privileges in Norway as well, and it's now the union really starts transforming into the Kingdom of Denmark-Norway-where-Denmark-calls-all-the-shots. (However even as Sweden had started to pull away, Denmark-Norway signed a treaty in 1450 stating they'd have the same king 'in perpetuity', so one might also consider it to have started there)

Ho-kay, so that's the short version of the history of the Kalmar Union. As you can hopefully tell from the above, you can't really describe it as Denmark ruling the union, but rather a "king in Denmark" ruling the union. One with certain tendencies to put Denmark's interests first.

How could Sweden and Norway be dominated by Denmark despite being bigger? Well, first - territory doesn't matter, especially not when it's mostly empty, as was the case. Denmark was population-wise larger than Norway, and about the same as Sweden in 1400. More importantly though, Denmark couldn't actually rule Sweden once Swedish opinion was firmly anti-Danish, as during the end of the Union. But up to the Stockholm Bloodbath there were a significant amount of pro-union Swedes, especially in the clergy. Roughly it started becoming more of a Sweden-vs-Denmark thing around 1500. Of course nationalist historiography in Sweden would long paint it all from the start as a grand war of liberation from a foreign oppressor rather than strife between pro- and anti-unionist Swedish factions.

The probable reason why the coronation and act of union (if there was one) was in Kalmar is because it was a conveniently-located coastal town, near the Swedish-Danish border (Blekinge province being Danish at the time), roughly equidistant from Copenhagen and Stockholm, with a royal palace and a cathedral. So a good spot for everyone except the Norwegians.

Finally as for why Copenhagen would be the seat of power, there's the simple fact Margarete was Danish. Sweden was the country she had least personal connections with. Copenhagen was closer to the continent, which she had plenty of aristocratic connections with. It was closer to other useful things like the Universty of Rostock, where Danes usually studied at that time. (Copenhagen and Uppsala Universities were founded in the 1470s) It was also much closer to the rival Hanseatic league, without them having as much influence as they did in Stockholm (which still has a medieval church just for Germans in the old town, to this day).

Sources: Any good Scandinavian general-history book will tell you all or most of the above, but I don't really know what to recommend in English. I like Alf Henriksson's book in Swedish though. There are some nice Danish books about Margarete in particular too (even fictionalized novels about her life).

I'm also taking the 'conventional' view and fallacy of viewing the union with the hindsight of its dissolution, in giving the period 1440-1520 short thrift. If you want to start getting more angles on the union history Gustafsson's 'A state that failed?' is a great place to start.