Federation is the interoperability between different instances of a service. If your instance stops federating, then it will be just like Reddit, Twitter or YouTube: one website where only you and other people on that website can talk to each other. Federation allows many different websites to talk to each other and create a new kind of shared media platform (the Fediverse), where you’re not locked into using one specific website to access its content. Most services in the Fediverse use the ActivityPub protocol (an official W3C standard like HTML or CSS) to communicate with each other. Theoretically, any service that supports ActivityPub can federate with other ActivityPub services. That’s why you can comment from kbin to Lemmy or from Mastodon to PeerTube.

PS: Just to be clear, you the user can’t decide if your instance continues to federate with other instances or not. However, you can block specific users and whole instances yourself, so that your posts are not federated with them any more. If your admin decides to de-federate with an instance, it’s a server-wide block so nobody can see their posts any more and vice versa.

EDIT: I’m not sure about how it works with kbin exactly, but that’s more or less how it works on other ActivityPub services.