It does but like every federated service, it can also choose to defederate from another specific instance, and as a user you may or may not object to that.

• “local feed” on a smaller pixelfed instance will be smaller
• “global feed” on every pixelfed instance will see all pixelfed and all (image) mastodon posts, but comments made on mastodon posts using pixelfed will not be seen on mastodon
• in theory you can see Lemmy posts and subscribe to Lemmy communities with pixelfed but I haven’t got it to work. I’ve seen someone post from pixelfed to Lemmy but commenting didn’t really work.