Federation means, multiple servers talking to one another and exchanging information.
You're on lemdro.id, I'm on my own server, yet we can talk. I can shut down my server, and you will still see my comments from lemdro.id.
This ensures you don't have to be on a single website along with everyone else: you're always free to leave lemdro.id if you wish and go to say, lemmy.world or sh.itjust.works or whatever other instance you feel like.
Lemdro.id doesn't appear to block any servers, so it will federate with any server that doesn't block lemdro.id. You can see the list here: https://lemdro.id/instances/linked.