If I go to a certain user’s profile, it says this (Banned) does this mean they are banned from my instance or can it say this if they are banned from a community too?

It's client dependent, but generally if you see it on the profile, it means they're banned from your instance

Check the profile on their home instance, too. Both of these situations can happen: Either your admins have banned them from your instance specifically, or else their home instance's admins have banned them from everywhere.