Firstly, your 'instance' is just like your email server. It doesn't matter if it's @yahoo.com or @google.com, I can still email you and you can respond. Some people even have their own servers.
Next, imagine if Facebook, Instagram and Twitter users could all follow each other's posts. The posts are already pretty much the same but we just add @Facebook or @Twitter to the end. You could log in to one, but see posts from the others. The only difference is the layout and design of the interface, like the difference between 'Gmail' and 'Outlook'.
You can also move between servers easily if you want. Sick of @Facebook? Move to @Instagram without losing followers.