Seems like it should definitely not be the default sorting mechanism. It's a fringe use case at best. Most people subscribe to communities across the 'verse and their default should be "subscribed" and have 5> communities and "all" if not logged in or have fewer than 5 community subscriptions.
It's a feature of federation. Each instance can have it's own communities, even with the same name. So there could be hundreds of "no stupid questions" communities out there.
Picking 'local' let's you see the feed of your instance. Picking 'all' shows you the feed from all.
It means only the sexy hot singles 5mi from you can post. Click here to meet up with sexy girls who wanna bang! (sexy girls who want to bang are not near you)
I've been thinking about this off & on, and I keep coming back to the silly idea of renaming it, "Here". It wouldn't really clarify much, but the questions would be funnier:
"What is "Here" filtering?"
"It's showing you here"
"where?"
"here, where you are"
"but where am I?"
"you're there!"
"so what's here?!"
I wanna add to this that "all" isn't really from all Lemmy instances, but instead only from communities your instance knows about.
I'm not sure if anyone on your instance has to be subbed to that community or if it's enough if that instance was searched for once on your instance.