The Fediverse is like a country, and an instance is like a town connected to the other towns in that country. You're free to travel, visit, and interact with people in all the other towns that have their roads connected.

Each town has its own rules and culture, but they generally get along with all the other towns in the country. You can even choose to build your own town with your own rules and have a road connected to the rest.

On the other hand places like Facebook or Twitter are like huge, walled cities where you can only interact with people inside that city. They also claim the rights to all of your data to sell off.

Fediverse = universe of federated instances.

Federation = many entities connected together and interoperating, etc

Instance: every individual Lemmy site with its own domain name runs an instance (a running copy of the software) on its server.

Those servers are talking to each other so users on one can talk to users on another server. That's federation.