Layman here, from what I gather it sounds like federation is like one of those cups connected by lines. Federation is the equivalent of having a line connected to the web of cups and strings. Then suddenly a big cup provider comes into the mix, which at first seems great since there are more people communicating through cups. However, due to their bigger resources they greatly outpace the rest of the web, offering fancier cups and stronger wire, resulting in people moving to their cups. Then one day they cut the connections to all other cups but theirs; while the original web is still intact, the remaining users are essentially cut off from most of the cups they were connected for.

By defederating instances are basically (but probably not as effectively as Meta would) cutting that string before they get the chance to infiltrate the web.

Idk though once again I know very little