An “instance” is a techie way of saying it’s a copy of that thing
(disclaimer: I’m not a lemmy expert, just techie.)
A Lemmy instance is just the server where accounts and set of communities lives. e.g, Lemmy.world or Lemmy.ml, etc. Each instance can “federate” content from other instances, which is a way of publishing content to servers you otherwise wouldn’t see. You can see content and communities from other instances as well as comment on those other instances even though you don’t have an account on each one.