Well I'm new to this so I'd appreciate someone else chiming in because I'm probably wrong but here I go!
An instance is a server in the fediverse. Mastodon, Beehaw, Lemmy World. I've created my username (or my identity) on Lemmy World allowing me to access any community hosted on Lemmy World. In turn Lemmy World has not only created and curated its own communities but because it shares the same open source communication protocols as other instances my identity can post to any other connected instance in a different community as long as the two instances agree to talk to each other.
The risk here is that Lemmy World can at any time defederate (stop communicating) with another instance. A good example of this is Beehaw. As the influx of users came in Beehaw defederated from the two major instances. Inside of Beehaw was a fairly large Technology community so because my identity was created on Lemmy World I have no way of seeing that community.
On the app I'm using I can tell if a community is outside of my instance when it says "community@instance" which helps me decide which instance I ultimately I'd like to create my identity in.
Hope that helps and if not let me know what questions you have!
Isn't that a bit of hyperbole? If it was turning into what you said we'd be seeing a far greater amount of servers than we are.
The point of the fediverse is decentralization. That means if you have a predominant rigid viewpoint you can find an instance that shares that view. I don't think at the current state of development that the fediverse can have a dominating instance that connects everything. It's up to you to create a community you feel is missing on the instance you've settled in if no other federated instances have that community.
We've proven through Facebook, Reddit, and Twitter that we suck at communicating across groups on social media and are more interested in insulting whoever disagrees with us than communicatimg effectively.
That being said the Fediverse is young. Things aren't perfect. It's still less censored than almost any other social media platforms aside from 4chan and I'd urge you to use that if you are looking for anti-censorship.
For myself, I've picked out a dozen instances and I drift between them all while I figure this out. I treat it just like my half dozen alt accounts I had on RiF.