Each instance is effectively its own reddit, each community is a subreddit, but people who have accounts on one instance can see and subscribe to communities on other instances so long as those instances stay federated with one another.

To create a new community (through the mobile web interface at least), hit the hamburger in the upper right hand corner of the screen and you should see a "create community" option.

This is all coming from someone who's used lemmy for about a week, so someone please correct me if I screwed up any of that.