Just think of it like different email providers. Ex. Gmail, Hotmail, Protonmail etc, they can still talk to each other just fine but are run by different groups with their own rules.

The reason why is to make sure a single entity doesn't hold all the power.

Reddit is only failing because the corporation holds all the power. If we replaced Reddit with another single site, the same thing would happen again. The site would sell out and it would be whored out to advertisers.

On Lemmy, if one site tries to go corporate, people will just move to another instance. The power is in our hands and no corporations can take it away.

As to why, basically anyone is allowed to run their own copy of lemmy and some people actually enjoy doing it. There is more nuance of course. For instance, the owner can block other people's instances for whatever reason so no one on their instance sees content from the other instance and people from the other instance can't comment or vote in their communities.

There are definitely pros and cons to this approach, but the cool thing about it is the whole thing is back in the hands of real people and not owned by a bunch of investors.

Lemmy is a bunch of servers that talk to each other instead of just one server that holds everything. A Lemmy "instance" is one of those communicating servers. You can join any of the ones that talk to each other and see the same content. You can sign up at any of the websites you see in people's usernames here (e.g. mine is lemmy.sdf.org), it's good to sign up for the slightly smaller ones to better balance the server load.

You can think of instances like communities, You can join different communities with different rules and all these communities are connected to each other. So no matter which instance you choose, you'll still be able to interact with people from the others.

Now the reason for the existence of different instances is the same reason why there are different communities in the world. Some people feel more comfortable in groups of people with similar tastes.And having multiple instances ensures that no instance "owns" the social network.