Federation is like instead of having single reddit you would have many different reddits under different domains, they have their own subreddits. You don't need to create separate account on every reddit, you can theoretically access those subreddits from any of those reddit servers.
Now, defederation is breaking that. If there's reddit-A and reddit-B, you have account on reddit-A and they both de-federated, you won't be able to access subreddits from reddit-B.
I think one of lemmy servers that defederates the most is perhaps beehaw.org. Their goal is to create welcoming space accepting everyone. So they defederated from servers that they believe is ruining that experience, either because admins of those servers are not proactive, or outright support stances that beehaw.org does not tolerate.