Not exactly, but close! Rather than pulling communities from other instances, it will have its own communities, but these local communities will usually have a tech focus, and thus so will the users. programming.dev is one example I know of. That doesn't mean they don't have other communities like for gaming and whatnot, but by virtue of being hosted on programming.dev, a gaming community there will likely have users more with a programming background.

That's why generalist instances are, IMO, overrated. You can visit other federated instances, so your All feed will cover you for diversity if you want to step outside your niche.

Different instances go for different federation strategies, though. Hexbear.net, as an example, likes to have generally small lists for federation and remain fairly self-contained, as it is a space generally for Communists and Anarchists and does a good job of protecting its large queer userbase. Instances like Lemm.ee, like the one you have an account with, see almost everything, and are designed more for their All sort than local (though some communities are definitely on Lemm.ee).

Does that make sense?