Instances are like smaller Reddits. Communities (lemmy) and magazines (kbin) are like subs. You can subscribe and participate in any c/ or m/ as long as their instance is federated with yours.
To add to the fun, we can also interact with users on Mastodon (similar to Twitter), Pixelfed (like Instagram), or any other ActivityPub-enabled instance that federated with us.
To my mind, a better analogy is email. It doesn’t matter which platform (provider) you use, you can interact with anyone on almost any other email platform. Make sense?