Oversimplifying it, but think of instances like lemmy.ml as an email domain. Maybe you have a Gmail account, you still get email from msn, Yahoo, etc. As long as an instance remains federated you can see and interact with posts from any other instance. So the instances appear confusing, but they’re a bit meaningless for consuming.

One big advantage to instances, if I have a business, I can create my own instance and only allow my employees to have accounts. Everyone else can still post threads and comments, but my employees have essentially a verified status.