This isn't the best example, but helped me a lot in understanding it (mostly) It works kind of like E-mail. Each instance is like an email provider. Lemmy.world, beehaw, lemmy.ml, ect are kind of like gmail, yahoo mail, and outlook. So the instance you signed up for is your "lemmy provider" as if Google is your email provider. Now when you email people, you can email to any other provider (yahoo, outlook, etc) and vice versa. They are all similar services but different providers, but they all work together so any person can email any other person. They are federated - one big services, but each provider has its own autonomy in deciding rules, features, etc. So most instances can work with other instances to share information/posts. But not all. Some have deferdeated form others and don't share posts/information. As if yahoo said they we're no longer accepting emails from google. So gmail user's emails would not get sent to Yahoo mail users, but others, like outlook, would. You would say they defederated from google. Much like beehaw did from lemmy.world.