The problem for those operating a Lemmy instance is that they are hosting copies of the content of all federated instances.
So if one instance is filled with illegal content, the admins of all federated instances must remove it on their instances to avoid law enforcement kicking down their doors.
If there is too much illegal content on one instance to effectively moderate manually, defederation is the solution.
This is beside the fact, that some might have their own additional non-legally mandated requirements for content they host on their platform.