The easiest way to think of it is a bunch of small reddits or twitters whose users can follow people on other small reddits or twitters. The defederation concerns are because being able to talk to people on other small twitters or reddits and not having things dictated from on high are the big selling points to most people.

You have an account on one server eg. [email protected]. People on example.com smallreddit will see you're posting from bar.com (ie. your username will look something like [email protected]). The bar.com server's UI may expose stuff from other servers to bar.com users, and the reverse.

Defederation means severing those visitation rights and other interop between two small twitters or two small reddits, something Mastodon servers use rather liberally.

In practice, what ends up happening is that at least Mastodon has hideous degrees of ideological conformity via defedding and general woke modding, and there's essentially standalone dissident "witches' covens" and an archipelago of servers whose maintainers tend to think different politics are de facto evil. I could hardly use the same account to see what progressives, gendercrits and various strands of the right are talking about the way I can on Twitter, for example, because of the defederation moats that have been erected.