Here's #Bluesky's diagram of the federated network.
Labelers are independent services where posts coming from the BGS are tagged to make them easier to filter. Accounts (and maybe admins) can then hook into a labeler to outsource some of the moderation load.
Feed generators sort and filter posts. This is where the custom algorithms live.
App Views also do some sorting, but they're mostly (I believe) for sorting out post types for app types, e.g. photoblogging, microblogging, etc.
This is much more complicated than I initially understood, both technically and socially. Since Labeler, App View and Feed Gen are all separate services that can be run independently of both the BGS and PDS, taking full advantage of the network means implicitly trusting four different entities on top of your local host. And even if you don't trust them, they get a say in how (or if) your posts are received by others on the network. I guess that's what #Bluesky means by the "reach layer."