The small town was just an example. You could just as easily make a small social network for a band, or a hobby, or anything you could imagine having its own subreddit/discord/etc.
You are of course describing what the net used to have a lot of: forums, bulletin boards, and chat rooms. They all had the same problem of getting too hard to moderate when they got too big, but they weren't VC funded so growing indefinitely was not their only way to survive. They could reach a nice stable size that they could still moderate and subsist off that.
And then came Facebook along and killed them all in one (big) shot. Okay not all and not in one single shot but what's left of forums can be counted on fingers. I guess exactly the freedom of not being moderated was the nail in forum's coffin, also having it all in one single place as everybody had Facebook. WhatsApp groups replaced 1:1 chat groups now that I think about, so that was not lost... Anyway my point is, people realized they favor freedom of posting nonsense on a usually better looking and more instantaneous, single, platform. Too bad with the bathtub water the advantages of the forums (collective memory, cleaner content) went down the drain as well, but that was just collateral damage in the end.
I don't have numbers unfortunately, but with Facebook what I think also came was "everyone else". People on forums and chatrooms were still in a niche group of individuals who cared enough about a niche topic AND cared enough to have a PC and an internet connection. When smartphones came along, we were getting everyone online, and the network effect of a platform like Facebook meant that even people who would have preferred forums had to go sign up to Facebook to stay in contact with social groups they were part of. Forums couldn't compete with the number of new groups and communities being formed on Facebook, and the pull of that network effect.
For some reason a lot of specialist car specific forums have managed to stick around, I think because they have long functioned as knowledge bases, and Facebook does not function well for that use case.