One nice thing about a federated system is that admin work is also distributed. I run a small server that has existed for a long time (and has knowledge of / federates to some extent with most of the fediverse as such), and my co-moderator and me have a very manageable administration workload (mind: you only have to moderate content that actually arrives at your instance, not all content that is posted everywhere ever). The Mastodon software (and most other fediverse software) has multiple tools for this specifically.
On our instance, we do not allow "untagged" (not hidden behind a content warning) pornographic content. If an instance allows this, we "silence" them - meaning that none of their content shows up on any public timeline anymore. People can still follow users from there, but that's their choice, and none of my business - and nobody is getting a facefull of tiddy if they don't specifically want it.
If an instance is generally acting in good faith, but allows images that I definitely do not want cached locally, another tool you have is "media reject" an instance - in that case, no media from that instance will be downloaded. Can still follow, but have to click through for images, and no thumbnails. We try to avoid this, but, you know.
The nuclear option is to just defederate from an instance entirely. We also try to avoid this, but it's a very effectice "ugh god I'm not dealing with this" tool.
edit: That's on a macro level, of course - we can also do the same thing to single users, and that's obviously preferred if it's just one idiot. a user submitting a report can also choose to forward the report the the originating server, which can be helpful to get a problem at the root.