Q: What's this "Federation thing?"

A: A bunch of communities, on different servers, sharing /some/ but not necessarily /all/ of their traffic. Or, in some cases, none. It depends.

The User Guide has a good section:
https://github.com/tootsuite/mastodon/blob/master/docs/Using-Mastodon/User-guide.md#decentralization-and-federation

Q: It sounds as if that's complicated. Do you have a picture you can share?

A: @vhf made one: https://techn.ical.ist/users/vhf/updates/102

It misses a few edge cases, but mostly, that's how the spice flows. Er, toots.