Federation is a trust relationship between two entities. If two companies that are separate enterprises need to communicate, they federate to enable easy access to common data.
Federation is not the same as Active Directory Federation Services, but it serves the same purpose: enabling two enterprises that do not share a common authentication base to interact with each other.
For example, a manufacturing company and a supply chain partner that sells raw goods to that company might federate their enterprises to enable collaboration and access to common applications. Access can be managed in much the same way that access is managed in separate organizations, within a single entity, because users and groups can be populated ...