You have greater assurance of what the software is doing behind the scenes.

Even if you can’t read code, others who can will; privacy groups (official and hobbyist) likely will.

You can know, even if just through others, sort of what’s going on with the software in a way you simply can’t with proprietary software.

100% this; cheese on its own is always a wonderful snack.

Technically, yes, if you squint; but, practically, no. It was designed with a prioritization of passing the information/data around to avoid any lack of missing anything (so you get a closer experience to the connectedness of Twitter than Mastodon) which means every instance hosts, basically, the entire world. Naturally, there’s only going to be a few entities that can store and afford to store the entirety of the data of the network. There’s no such thing as a small instance, in their protocol.