Federated means consisting of a group of organizations, countries, regions, etc. that have joined together to form a larger one.

Cambridge Dictionary

So in this case XMPP is not controlled by one company like Facebook or Google. XMPP is like email. You can get an email account from any email provider and with that email address you can send email to any other email address even if it is from a different email provider. The same goes for XMPP. Anyone with an XMPP address can communicate with any other XMPP address. Why is this good? If you don't like your XMPP provider, you can switch to another provider.