I still don't understand how defederation = censorship.

Suppose an extreme example: A considerably sizeable instance defederates to everyone else.

Is this censorship to every other smaller instance, or to itself?

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its gay

Basically some admin is deciding what a platform's users are (not) going to see instead of the users deciding for themselves

The admin is making a censorship decision on behalf of their users without their user's consent. That would be fine if the users could override it. Curration is valuable, oppression is not.