“who gets to say what’s worth banning and what not?”

Just like with privately hosted services like Twitter and Reddit, it’s the person/group hosting the content. The decentralized nature means that if you disagree, you can voice that, or host your own instance, or move elsewhere that aligns with your viewpoints. Some people have multiple accounts spread out across instances to see different kinds of content.

Rambling below, you can stop reading here if you want.

Being federated doesn’t mean moderation can be ignored on either end. Some groups may not want to deal with certain content that others want to (could be for personal or legal reasons), and that’s OK. Since individual posts can’t be moderated across instances, if there are big patterns of moderation disagreements, then defederation is the only option and that’s usually not fun for anyone, so it’s generally in everyone’s best interest to stay generally acceptable to everyone else.

Of course, nothing is forcing that. There are currently instances defederated from my home instance Beehaw, for example. I’d imagine they’re still doing just fine without that federation, too. It can be argued that it’s against the spirit of federation, but at the same time you really can’t expect people to want to host data on their server that may not be morally or legally acceptable to them.

(This is all ignoring purpose-driven instances. People can choose to make an instance where only a specific kind of content is available, too. It’s much easier to manage that kind of instance due to the smaller scale, but as with anything there are downsides to that, too.)