Well, it’s actually a bit simpler than that.
You can directly browse a community that technically lives on another instance without ever leaving your instance.
If you’re on the start page of your instance you can e.g. change between seeing Local, Subscribed or posts from all communities (across instances).
You can click around and browse from there without having to leave your instance :)
Iirc it was mostly about storing some user preferences and providing push notifications.
Reddit apparently has no async API for notifications, so 3rd party apps are forced to regular polling.