You are generally right.

Choosing an instance is less important on Lemmy than Mastodon (where communities have a greater sense of identity and there are issues about whether or not an instance federates with ones it doesn’t like - big debate about allowing Threads to federate at the moment).

I’m terms of having multiple competing communities, Reddit was always like this and I used to subscribe to essentially the same ones but run by different mods. I guess it becomes survival of the fittest so the communities that are most active grow. Like the early days of Reddit, there are LOTS of communities being created with no content. It’ll either settle down or people will abandon Lemmy for something else.