So, while a given community is overseen from a host instance, the actual content you're reading isn't. By subscribing to a community, the content there gets delivered to the instance you're on, creating a local mirror.
On Mastodon and the other microblogging platforms, this subscription is done on the user level. If one person on your instance subscribes to a user on another instance, that users' posts are available to everyone on your local site. Here? I'm not totally sure at what level content gets shunted and shared around.
But it's definitely not centralized. You're not reading posts on other websites. You're just reading posts from other websites.