A federation is a group of computing or network providers agreeing upon standards of operation in a collective fashion. Typically, this lets users create an account on one app, and log in with that account on another app that is in the federation.
There are quite a few projects like this, such as Mastodon, Pixelfed, and Bedrock Addons. These applications work by allowing anyone to host specialized software on their server, and then that will communicate with the Android apps that exist, and keep the apps up to date with each other, along with storing user data on whichever instance that you choose.
This is quite different from decentralization due to the fact that the users are not hosting their own files and content, they are contacting servers that can talk to each other and share data.