I read the description of Federation app saying
Federation allows you to connect with other trusted servers to exchange the user directory.
what i want to know is how does federation app gets aware of other trusted servers ?
are those truested servers the one running nextcloud instance or could be any other exchange servers too ?
It is always a good idea to search the documentation for an answer first 
I see, so we can share our files and folders with other nextcloud users but they just won’t be local to them.
“Federation” means that you link two Nextcloud instances together to that they know and trust each other. Users from one instance are able to contact users from the other instance and are able to exchange data with them.
fair enough, I just finished setting up master - master mysql replication over vpn that connects 2 nodes cross continents and data usnig syncthing sycned for nextcloud. federation wont do much benefit here unless someone wants to join in the party.