Exactly, your instance stores what you post (local) on it and what gets federated to it (cache, basically). You search those local and cached things. To do it some other way would basically man that either all instances somehow discover each other and send everything to each other all the time or your instance somehow discovers and searches all other instances when you do a search.

There has been talk about something that should make things better as far as “couldnt_find_community” more or less auto-searching a remote community when you go to a /c/community@example.com sort of link so the experience is less jarring and doesn’t require you to know you have to do a search.