Lemmy is just the software this website uses. You could download lemmy, install it on your own server, and have your own community – AKA instance. It would be your website, but running the standardized “lemmy” code/interface.

This instance (website) is federated with the one I made an account on. I can browse communities, read posts, and comment on this lemmy website (lemmy.world) through “my” lemmy website (midwest.social), and vice versa.

“Federated” means two sites running lemmy have that agreement. “Defederated” means they don’t allow their users to interact – you’d have to make an account on each site.