Very rough explanation:
An instance is just a single distinct computer (server) running the Lemmy software. You have a bunch of these separate computers running the Lemmy software. These computers - together - form the Lemmyverse. (I'm purposely leaving out Fediverse, activitypub).
Each user (no matter what computer/instance they signed up with) has the ability to comment on any post made within this system of cooperating computers (The Lemmyverse). We can also subscribed to each other's communities (ie; forums, subreddits).
That's basically it. The ability to share posts and to comment on each other's posts. You can't use your login details across Lemmyverse since each computer is distinct.
Some of these distinct computers may decide they don't want to be part of this Federation of cooperating computers. For the most part they can disengage from this Lemmyverse. For the most part... but the software is still on version (about) 0.18.2 and so complete (or temporary) disengagement from Lemmyverse is still in development (ie; coding, logic decisions, etc).