Haven't used lemmy in particular. But in theory defederation exists to block bad actors. Since anyone can host a server themselves and no one can stop the servers outside some kind of government intervention, each server needs the ability to block a spammy or even illegal content filled server.
In reality, it is used for that and the censorship of ideas server owners don't like... or even just blocking a server because the admins of each server had a spat. It has been likened to little fifedoms each with their own flavor of tyrant, a little drematic imo but not wholely wrong either.
Another use is if you want to use the software, but don't want/need connections to the greater network. So you fully defederate and only allow your friends to have logins to your isolated server.