What does "enshittification" mean? How is it caused?

Basically, it can happen when one company (or a few companies) dominates a market, so they can gradually make shit worse for everyone, trying to make just a bit more money.

Federation is the solution. As long as there are many servers, run by different owners and administrators, any single server can only fuck itself over.

That is why the open source community likes protocols, interoperability, APIs, and federation. No single software package, or server, should control the entire market. Single-point failure means brittle architecture, whether through accident or intent.