This seems like a very misleading title, the Bluesky PDS is the meant-for-selfhosting thing they distribute, not the bluesky service as experienced and used by most of its users.
AFAIK there's only one version of the software so "the service" runs the same thing that you self-host. SQLite seems like it will simplify the single-user case though.
The main motivation in moving from a big central Postgres cluster to single tenant SQLite databases is to make hosting users much more efficient, inexpensive, and operationally simpler.
But it's also part of the plan to run regional PDS hosts near users, increasing performance by decreasing end-to-end latency.
The most experimental part of this setup is using Litestream to replicate these many SQLite databases (there are almost 2 million user repositories) to cloud storage. But we're not relying on this alone, we're also going to maintain standard SQLite ".backup" snapshots as well.