You can read more about it here: Loki deployment modes | Grafana Loki documentation
If it’s for home lab then single instance on file system should suffice. I had some discussions with other folks who were also running single instance of Loki, and it may be helpful to you (such as Too many outstanding requests on loki 2.7.1 - #12 by tonyswumac and Loki became very slow after upgrading from 2.3 to 2.73 (and only works in certain circumstances)).