That needs a longer explanation.

An instance does not interact with all other instances. It only syncs with other instances when users follow someone there, join a community, …

But that’s also a problem. It means you can’t search the entire Fediverse from a particular instance and find new and interesting discussions and people. There is no discovery feed. For that, you need something like Bluesky’s relay. That relay actually does keep up with what everyone is posting and archives it.

But that’s one aspect of Bluesky that draws a lot of criticism by Fedi people. A full relay is expensive to run and not something anyone can self-host. Pruned down versions are doable, though. If everyone actually did run their own relay, then one would get you the combinatorial problem.

In practice, large instances are the Fediverse solution to the discovery problem. You can see what the many users on that instance post. Also, the many users subscribe to many things and so a large instance will cache much content from elsewhere. That architecture encourages centralization.

There’s other difficult issues. So you have a little server that serves your content to a few followers. Some celebrity with millions of followers would have to rent an entire server rack. But what if little old you interacts with a celeb and now all their followers try to fetch your content from your little server? Common problem. You just need caching. EG the celebrity rack also serves your content to their followers and takes the load off your server. But now whoever is doing the caching can also filter replies. There’s no simply solution there.