It helps to think of instances (Lemmy.ml is an instance) as an imaginary layer between reddit the platform/company and subreddits. Themselves miniature versions of reddit with their own subreddits, often overlapping thematically with the subsubreddits of other mini reddits. Sometimes these mini reddits have an over arching theme or vision, and sometimes they are just a hobby hosting exercise. But all of these miniature reddits can theoretically exchange posts and comments by choosing to federate with each other, by virtue of being under the same reddit platform.

Now remove reddit entirely and change the platform into a protocol and you're close enough for government work.