Comment by SpaceManNabs

An instance is a server. Server administrators set the policy for creating new user accounts and new communities. This is the equivalent of a Reddit admin.

Since it's part of the Fediverse, a user on one instance/server can subscribe to a community on any federated instance, and make posts/comments/etc. You don't need a separate account on every instance.

Communities are typically moderated by the user(s) who created them, much like moderators of a specific subreddit.