Correct. Bavaria once tried the same thing, but then MS went to the local politicians, sucked their dicks a bit and boom, back to MS products it is! Hopefully the north doesn't fall for that kind of shit, and they likely won't because Bavaria is a backwards piece of shit of a Bundesland while Schleswig Holstein is kinda cool.
I might be talking bullshit here as I'm also pretty new to this. But I believe an instance is the server (basically like Reddit) where all the communities (Subreddits) are located. These instances can federate with other instances to grow in a decentralized fashion. Every instance can impose site-wide rules (e.g. beehaw disabled the downvote button, I believe, so you can't downvote anyone in all of the communities that belong to the beehaw instance).
Someone please correct me if I'm wrong!