instances are servers and communities are like subreddits, each server (instance) is basically like a small reddit but they talk to each other

as for beehaw and lemmy.world thing beehaw never wanted to be a reddit replacement, they wanted to do their own thing and were afraid that the huge influx of users coming from sh.itjust.works and lemmy.world would cause moderation problems and decided to defederate (i think it was a bit of an extreme measure)