Basically the way it works is most of the servers are run by people from marginalized communities. They don't like it when people call them slurs, so they ban s

Basically the way it works is most of the servers are run by people from marginalized communities. They don't like it when people call them slurs, so they ban slur-sayers from their own servers and block the servers that won't. When a new instance with slur-sayers pops up, the mods who care notice because they start seeing lots of reported posts, so they check if the new instance has responsive mods and rules against saying slurs and if it doesn't they block the instance. Then they usually make a #fediblock post about it including the domain of the instance and what it was blocked for, and people who appreciate moderation boost the post so the mods for more instances will see it. Of course it's not just saying slurs that instances get blocked for, but that and spam are the most common things new instances get blocked for. There are a few other common things that instances are blocked for, but since the people doing those things aren't trying to bypass blocks so they can harrass people they don't feel the need to make new instances all the time.