That's correct. I'm replying to you on jamie.moe right now, but in reality, what I'm seeing is a copy of what lemmy.world has. When someone makes a post, leaves a comment, or whatever, all of the instances that are federated and have one subscriber in the relevant community get updated with the change.

When I read this thread, I'm actually reading a copy of the thread stored on my own instance, and my instance just tells lemmy.world when I leave a comment and it will update everyone else. While it isn't very storage efficient, it does even out the load since users on one instance only require a single update from the main instance for all of those users to interact with that content, rather than instances asking for copies of things every time a user on one instance needs it. It spreads out the load nicely and lets even underpowered hardware serve wider communities than it could otherwise.

The downside is you have to have the storage space to keep content for your user(s). Though, getting a lot of storage space isn't expensive at all, so I would say it's a minor concern. Lemmy uses little in terms of RAM and compute, those two factors are the biggest things that can up your cost really fast. A gigabyte of storage on a server can typically be gotten for a fraction of a penny.