It saves every post and comment on its own server, and filters it there. If you're viewing text through lemmy.ml it will not have the N word in it. Apparently fuck is not strong enough, hence my doubt in my immediate reply to my own comment.
edit: I assume if a user on lemmy.ml comments a slur on a lemmy.world instance it will also federate only the censored version, but I'm not sure about that.
Clearly you don't know what removed is, because if removed was your removed in the middle of the night, you wouldn't removed so quickly as removed up your removed.
For a short while, the lemmynsfw server used a slur list that, in order to catch all the variations, only used the first syllable. It resulted in words like 'toremovedht' and 'hot and removedy'.
It was pleasantly nostalgic, with memories of Fark and its attractive and successful African-Americans.
lemmy.ml has a slur filter active and built in that is on the aggressive side. Each server may have different filter words. If you post to somewhere that doesn't have that word in the slur filter but yours does, others will see the word and you will see "removed".
This is useful for servers that value a safe space for users against hate, bigotry vs. other servers that are a little more laissez-faire with censoring where appropriate.
One of the reason i don't have an account there like sometimes you just have to say "fucking hell what the fuck" instead of " removedremoved what the removed " you know not every curse ever typed is insulting someone . I do understand that you need to cendor words which are racist or sexist but the rest should'nt be censored.