Quote from prosody.im: XMPP allows for servers communicating seamlessly with each other, forming a global ‘federated’ IM network. This architecture is very similar to email, where someone on gmail.com can send an email to someone with an account on hotmail.com, for example.
So, its not about simply adding contacts and stuff, its when you’ll want to use their MUC for example.
I hope hat explains it a little.
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Tony