Like does content get mirrored to my instance and then mine distributes it ala BitTorrent or is my instance it’s own thing?
Yes but only if you have a lot of users eventually. So your server can serve up hundreds of requests from several different federated servers (eg: maybe some content from beehaw, other content from lemmy.world) instead of 1 server (maybe lemmy.world) having to serve that same content 100 times from all over the place.
If its only you and no other users, then not.