I’m not sure if I understand why certain instances can choose not to federate with other instances. It just seems to limit the content that is accessible to me.
Because certain types of content and users might have negative value in a given environment.
I'll use a mild example to illustrate that. Let's say that you got two instances:
alicelemmy - it's just a place to shitpost, chill, chat, and throw jokes. Serious discussion is frowned upon.
boblemmy - serious discussions only; joke posts are banned, you're supposed to quote your sources, all that procedure.
If both instances are federalised you'll see alicelemmy's posters doing shitty jokes in boblemmy, and boblemmy's posters trying to argue the jokes in alicelemmy. Both communities became less useful for their respective users, because now alicelemmy isn't just a place to shitpost and chill, and boblemmy's content has become less serious.
This happens a lot in Reddit, as a consequence of the Fluff Principle and the lack of barrier between subs. However in the Fediverse you can somewhat avoid it, by not federalising instances together.
In the meantime, if you enjoy both shitposting and serious discussions, nothing prevents you from accessing both instances separately.