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every instance is sharing in the traffic to browse the fediverse. Not one service is responsible for serving content, you (the instance admin) are only serving for your members.
The downside of this is there is a huge amount of replicated data stored everywhere. Content of popular communities will be scraped by and stored on many many servers, filling up servers and increasing storage and bandwith bills for all those servers
I'm not sure your second paragraph is correct. First of all, it's "just in time" so will only be replicated if somebody on that instance is following it. But more importantly, I read a statement from a server owner somewhere that the software purges older content regularly (and refetches is "just in time" when somebody tries to view the old content) to keep storage size down.
If this is the case, then wouldn't his fitst paragraph be incorrect also? Because if it is "just in time" with quick purging, the main server still has to constantly serve the instance server the content. It would only be beneficial if many instance users are trying to view the exact same content at around the same time (so for the "massive" communities maybe?)
From my understanding you are correct. Each instance is responsible for serving all of the content of the communities created on it. So many small instances with a smaller amount of communities = good, a few huge instances with lots of communities = bad.
The purging of older content is good news I didn’t know that.