The Lemmy software is intended to be somewhat censorship resistant, but that does not mean that lemmy.ml is a "free speech platform".

Like most instances, lemmy.ml has rules (they're in the sidebar on the front page) and we regularly delete posts and comments which violate them.

That instance you're talking about is intended to be a "free speech platform", which in modern internet parlance is a synonym for "nazi bar". One of the two admins of that instance says explicitly: “racism, bigotry, sexism is allowed".

Most Lemmy users don't want to see that kind of content, so, most Lemmy instances have defederated them.

I hope this answers your question!

An environment where anyone can spin up an instance where they control member accounts and then post on other instances with impunity would obviously be an unusable hellscape of griefing and abuse. The only, ONLY, ONLY way a community can survive in these conditions is if they have power to censor the content that they syndicate. Indeed, that is the whole point of community groups vs just consuming raw Internet; the content has been curated (aka censored) according to some set of rules.

There are pure P2P networks that function the way you want. Go take a look and discover why no one is there.

I'm new here myself but as I understand it, defederation essentially separates that instance from the rest of the "lemmy-verse" by not allowing users created on that instance to interact and post to other lemmy instances.

You can still go to exploding heads and create a user there to post within that space. That user just won't be able to interact with other lemmy instances that don't federate to it. Maybe it's less censorship and more of a refusal to associate with certain content.

Someone more knowledgeable please feel free to correct any errors, lol.