Lemmy is just the software this website uses. You could download lemmy, install it on your own server, and have your own community – AKA instance. It would be your website, but running the standardized “lemmy” code/interface.

This instance (website) is federated with the one I made an account on. I can browse communities, read posts, and comment on this lemmy website (lemmy.world) through my lemmy website (midwest.social), and vice versa.

“Federated” means two sites have that agreement. “Defederated” means they down allow their users to interact – you’d have to make an account on each site.