> What are the implications of choosing one server over the other?
Unless you choose a political or spam-friendly server - it doesn't matter.
> Does this affect search and discoverability in between servers?
A little.
> If I really like Baking and really like Fencing as well, should I join the "Mastodon Baking" server, the "Fencing fans" server of a neutral one?
Shouldn't matter.
> Will the people on the Baking server start seeing me as some sort of outsider.
Never seen anything like this, but I can imagine if you choose a server associated with 'A' and leave a comment in a server where people hate 'A', they might have a prejudice against you, so it's better to choose a very neutral, general server.
> Can I restrict/split my posts between Baking, Fencing and general?
Use tags.
> How does the algorithm evaluate these choices?
There's no algorithm, you follow people you like and block people you don't like.