This comment was very helpful when I first joined. Long story short, each server is locally storing data for its own users and communities, and also for external communities that at least one user is subscribed to.
Everything is either self or donor funded, and it is my understanding that this model can scale quite a bit without a crazy amount of donations.
But if we get into instances with over a million users, I’m not sure when/if the donor funded model eventually breaks down. That’ll be a good problem to have though, because it means this platform will have been a massive success.