So to run lemmy you create your own site, and then every other site that runs activitypub (the underlying engine) you can choose to download and mirror the data from them, with any changes automatically being sent to your instance. This is federation. If one instance starts posting stuff that is immoral, illegal, or just generally goes against what you want to have on your instance, you can choose not to download stuff from them any more. This is defederation.

Because every site running activitypub uses more-or-less the same underlying language, it means you can federate with instances that aren't the same and they'll more-or-less function. This is how mastodon threads are capable of sometimes popping up in lemmy posts.