Why we declare WebDriver driver = new FirefoxDriver(); and not FirefoxDriver driver = new FirefoxDriver();

Here, List or WebDriver is an Interface - a contract or set of rules created for implementing class.
So, in Java, we cannot create an instance of an interface. ie
I cannot say List list = new List();
But classes can be instantiated. Hence,
FirefoxDriver fd= new FirefoxDriver(); and
ArrayList list=new ArrayList();
are meaningful because both are classes in Java.
Now, coming back to the same question. When we say FirefoxDriver fd= new FirefoxDriver(); or ArrayList list=new ArrayList();
It is nothing but using specific implementation. ArrayList or FirefoxDriver. If we have code like this, then in the future, if we want to switch to
other implementations of List or WebDriver then we need to modify our complete code as there is no guarantee that the rest of the code doesn't make use of methods specific to the particular class. However, if given like this:
List list = new ArrayList();
WebDriver driver = new FirefoxDriver();
It gives the flexibility to switch implementation any time with minimal rework.
For eg: changing ArrayList to LinkedList you can change the code to List list = new LinkedList(); from List list = new ArrayList();.