That's what they're saying.
Essentially - if someone from the small instance subscribes to a community that has a ton of data (huge post volume, images, whatever), the small instance needs to pull data over from the larger instance. At some point there may be communities that are so large small instances can't pull them in without tanking.
I wonder how that’ll play out in this federated model. Many of these problems sound like general problems with being a mod (honestly it sounds horrible) rather than uniquely Reddit.
The federated approach will shrink communities for a time but I worry that there’ll be a sharp recentralization as instances stop federating with anything below some size to avoid a wave of spam/junk (similar to the problems small mail servers see).
But I’m new to this model so maybe there’s a reason it won’t play out that way