Warning: MAJOR SPOILERS for Superman & Lois season 2, episode 15 below!
Superman & Lois season 2 concluded with a twist that has received a split response from viewers, but it greatly benefits the show's future. In Superman & Lois's season 2 ending, after Ally Allston, a.k.a. Parasite (Rya Kihlstedt), initiates her plan to merge the Bizarro World with Earth, Superman (Tyler Hoechlin) recharges his drained powers just in time to stop her. It is during this part of the finale that Superman & Lois makes a major revelation: the show does not take place on the Arrowverse's Earth-Prime.
This news comes from a speech given by General Sam Lane (Dylan Walsh) to Jordan (Alex Garfin) and Jonathan Kent (Jordan Elsass), where he states that despite the fact that "we only have your father on this planet," he has full faith that Superman will stop Ally. Along with Sam's preceding comment that he's seen "glimpses of other worlds and the leagues of superheroes they have on them" in his work with the Department of Defense, this confirms that Superman & Lois is set in a different world from the Arrowverse. With Superman & Lois heading into season 3, this is great news, as it means the show has a much greater chance of continuing further.
In the past year or so, it has become increasingly clear that the Arrowverse is nearing its end. The series that started it all, Arrow, wrapped up with the heroic sacrifice of Oliver Queen (Stephen Amell) as Green Arrow-turned-Spectre in the multiverse-spanning crossover mini-series Crisis on Infinite Earths. Since then, Arrowverse shows have steadily ended, with The Flash now being the last one standing. The Flash's upcoming season 9 also seems very likely to be its last. Had Superman & Lois clarified its ambiguous Arrowverse relationship by setting itself within that continuity, it would have been burdened with either ending the Arrowverse all on its own or keeping it going as the last of an almost completely concluded franchise.
Though Superman & Lois is set for another season with possibilities like multiple Superboys, the odds would not have favored it going any further if those were storytelling tasks it had to accommodate. With the show focused on Clark Kent's marriage to Lois Lane (Elizabeth Tulloch) and raising Jordan and Jonathan, it still has plenty of fuel left in the tank, especially with Jordan's near-fully developed Kryptonian powers. Superman & Lois gains immensely in not being an Arrowverse show by being given a great chance for longevity to fully flesh out its unfolding story.
With Superman & Lois removed from being tied to the Arrowverse, this might appear to be revisionist history or a covert soft reboot, but the truth is that the show has never gone out of its way to link itself to the Arrowverse. John Diggle (David Ramsey) is the only character from any of the Arrowverse shows to have appeared, with John meeting the Steel suit-wearing John Henry Irons (Wolé Parks) in season 2's finale. All that Superman & Lois's season 2 reveal has done is simply establish its Superman as a different version of the character within the multiverse. Superman & Lois's tone has also consistently been undeniably different from any other Arrowverse show, so de-coupling it from the Arrowverse has just revealed what has been suspected all along.
With the sun setting on the Arrowverse, Superman & Lois made the right call in establishing the show as being of its own world. However polarizing that revelation might be, it is most certainly for the best. For there to be a possibility of Superman & Lois continuing past season 3, it was all but a necessity.