I have no clue what the 2of2 or 2of5 means though. But what I do know s it means XMR can be added to decentralized exchanges when it's complete, correct?
'N of M' means N signers are needed out of a set of M possible signers.
This is used for all sorts of escrow and wallet schemes, such as 2FA where you don't give up control of your coins (2 of 3 where you hold 2 of the coins, the 2FA service holds 1).
Yes, some form of this is what some decentralized exchanges require, though depending on the specifics they may also need other capabilities.